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Morningstar | AngloGold Ashanti Has Made Strides in Improving Its Production Cost Profile

AngloGold Ashanti operates in nine countries across Africa, South America, and Australia. With significant scale but high costs, AngloGold was geared to generate significant free cash flow during gold’s bull run that ended in 2013. In recent years, management has made progress in improving the company's cost profile.Roughly 15% of AngloGold’s production is based in South Africa, lower than historical levels as continued challenges in the region drove the company to sell mines in the country. These underground mines are some of the deepest in the world, with high operating costs and safety risks. Furthermore, high labor costs (stemming from a unionized workforce historically unafraid to strike) and high electricity costs push costs in the region even higher. Nearly 50% of production is based in continental Africa. These mines have high costs and face added risk from political instability. For example, the company’s Kibali joint venture, expected to provide growth at costs below the company average, is in the Democratic Republic of Congo, which has appropriated foreign mining assets in the past. The remaining shares of production is in Australia and the Americas, where mines have lower costs and lower geopolitical risk.Our long-term nominal gold price forecast is $1,300 per ounce in 2020 dollars. In recent years, investment demand weakened as the Federal Reserve raised rates amid the strength of the U.S. economy. This downward pressure on gold prices should soften in the near term, as the U.S. central bank appears to be opting for a more dovish approach due to rising economic uncertainty.On the back of stabilizing investment demand and improving jewelry demand in China, we expect gold prices to reach a nominal price of $1,300 per ounce by 2020.