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AngloGold Ashanti’s new CEO needs to invest in Colombia, analysts say

By David Whitehouse
Posted on Friday, 9 July 2021 19:09

Offices of the AngloGold Ashanti's La Colosa exploration site are seen in Cajamarca, Colombia, August 26, 2016. Picture taken August 26, 2016. REUTERS/Julia Cobb

AngloGold Ashanti’s new CEO Alberto Calderon will need to take risks in his native Colombia to revive the fortunes of the mining multinational which has lacked permanent leadership for a year, analysts say.

Calderon takes up his role on 1 September. AngloGold Ashanti had been searching for a new CEO since Kelvin Dushnisky announced his resignation in July 2020.

The company has its headquarters in Johannesburg but ceased gold mining in South Africa last year. It has African assets in Ghana, Guinea, Tanzania and the Democratic Republic of Congo (DRC), along with mines in Australia, Brazil, Colombia and Argentina.

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The portfolio “needs difficult decisions to be made with respect to re-investment, closure or disposal,” says Simon Hudson-Peacock, mining investment analyst at S2 Research in Cape Town. The company “was and is still in need of firm direction,” he says. “AngloGold was adrift under interim CEO Christine Ramone who, although a capable CFO, is not a mining CEO.”

Alberto Calderon. REUTERS/Denis Balibouse

Calderon is a former CEO of Australian explosives maker Orica and held executive positions at mining conglomerate BHP. He “has all the right experience to lead AngloGold,” says Raj Ray, director of metals and mining research at BMO Capital Markets in London.

“He is relatively unknown in the gold sector but that is not necessarily a bad thing. The sector does need some fresh perspective.”

  • Still, Ray notes that Calderon is expected to be based out of Melbourne in Australia, which, he says, will be challenging with travel restrictions still in place.
  • “AngloGold’s presence in Australia is small compared to the African continent and Latin America.”

Bravery needed

During 2019, before the gold price started to increase, AngloGold looked like a prime candidate for corporate action, Hudson-Peacock says. “This motivated a de-risking of the balance sheet and improving cashflows by under-investing in resource and reserve conversion.”

So when the gold price began to climb in 2020, AngloGold was not positioned to take advantage, he says. The result was stock underperformance from a company which was “neither one thing nor the other.” Calderon has said he wants to reduce the company’s equity valuation discount versus peers, which he estimates at about 80%.

The Colombian assets will be key to doing so. They are “the most advanced” in the company’s near-term exploration portfolio, Hudson-Peacock says.  Colombia is “a risky jurisdiction, but these are probably the only assets which have the potential to make a difference to AngloGold’s revenue stream within a reasonable time frame. The alternative would be acquisitions which, in this market, are no longer particularly cheap.”

  • Calderon has extensive experience in his native Colombia as a former CEO of Cerrejón Coal and the oil company Ecopetrol.
  • He will need time to bring existing projects there to fruition.
  • First production at the Quebradona copper mine, which will produce gold and silver as by-products, is not expected until the second half of 2025.
  • Gramalote, which is also at feasibility study stage, is a joint venture with B2Gold in which AngloGold holds 50%.
  • The company expects the Colombia projects to contribute an estimated 600,000 ounces of annual gold-equivalent production in their first five years, once fully ramped up.
  • The projects have the potential to increase margins and cash generation, while improving the company’s life-of-mine profile, AngloGold says.

According to Colombia Risk Analysis, the  country has not fully developed its mining potential due to a lack of political consensus on the industry’s importance, inconsistencies in legal interpretation that create risks for companies, and insecurity in rural areas.

AngloGold notes in its annual report that “particular attention” needs to be paid to negotiations with Colombian regulators to secure permits.  “It will take a brave CEO to allocate significant capital there,” Hudson-Peacock says.

Bottom line

Calderon needs time, but many investors have already lost patience after the long leadership vacuum.

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