RBC Downgrades AngloGold On Valuation Despite Market Opportunity

RBC Capital Markets’ Richard Hatch downgraded the rating for AngloGold Ashanti Limited (ADR) AU from Outperform to Sector Perform, while raising the price target from Rand 120 to Rand 200, with the stock having gained 86 percent year-to-date.

Robust gold prices and weak currencies have led to a rally in the South African gold sector stocks this year, analyst Richard Hatch said, while adding that AngloGold’s stock had performed ahead of its peers.

A Quality Story

AngloGold continues to represent a quality and geographically diversified story in the South African gold space, Hatch commented, while recommending buying the stock on pullbacks.

AngloGold reported healthy FY15 results, while indicating a resilient 2016 in terms of cost control. The company offers attractive exposure to margin expansion, given weakness in the Rand and attractive diversification through its international business, Hatch stated.

The analyst expects the company to continue performing well, given improved safety and productivity at its South African business, its flexible balance sheet and strong international operations.

The decision of Randgold Resources Ltd. (ADR) GOLD to not proceed with the proposed Obuasi JV has mixed applications for AngloGold.

“[W]hile it spares AngloGold's balance sheet the challenges of having to fund the capex, the mine is cash consumptive (on limited operations) and is somewhat of a white elephant, with an increase in illegal mining incursions seen of late,” the RBC Capital Markets report noted.

Hatch expects AngloGold to resume a dividend with the FY16 results.