SOUTH African gold miners have sought valuation parity with their North American rivals for decades, largely by chasing offshore expansion.Gold mines in South Africa are deep, posing technical, safety and productivity challenges. South Africa’s regulatory regime is also unpredictable. For ambitious South African gold miners, buying shallower mines in Australia, the US and Canada holds the promise of improving the risk profile of total production.While making for better companies, this approach hasn’t enabled South African gold ratings to match international peers. That is why AngloGold Ashanti took its primary listing to New York and redomiciled in London, in search of deeper capital pools, access to new indices and an improved credit rating — all aimed at bridging the valuation gap.AngloGold CEO Alberto Calderon says this strategy has worked.Amid a doubling in price in 12 months, AngloGold was trading on a par with Newmont and Barrick Mining, the world’s top two gold miners, he said this month. Some gold miners still had better ratings, but in general the historic discount wasn’t “an issue any more”, he concluded.“For as long as this company has been in existence, we’ve struggled with the disconnect between our production size and relative size to our North American peers. We’ve gone about systematically addressing these issues over the past three years,” he said.Calderon was commenting after AngloGold posted impressive second-quarter numbers, the highlight of which was a record $406m interim dividend. Debt is becalmed and is due to be extinguished. But the key number in AngloGold’s deck is its cash cost performance over two to three years, which is now on a par with the best of the gold producers.The hope is that recent market momentum will bring the company to the attention of the biggest funds by dint of its access to previously unavailable indices such as the Russell index. While primarily listed in Johannesburg, AngloGold was beyond the attention of these potentially catalytic pools of capital.In general, analysts recognise that Calderon has brought about a major turnaround at AngloGold. “Wind in its sails,” says Nedbank CIB’s head of markets research, Arnold van Graan, of the second quarter.Analysts at RMB Morgan Stanley add: “In absolute US
dollar terms, AngloGold has outperformed the global peer group, supported by both earnings upgrades and a rerating.” On both a 12-month forward enterprise value to earnings before interest, tax, depreciation and amortisation and p:e basis, AngloGold’s discount to the peer group has narrowed from about 45%-55% in September 2021 — the effective appointment date of Calderon — to 25%-40% today, the bank says.The RMB Morgan Stanley analysts add, however, that deratings of some peer group members, such as Agnico Eagle, Kinross and Gold Fields, have contributed to this narrowing of the discount.Then there is also a curious observation from Scotiabank. Though AngloGold has outperformed expectations, it says: “[AngloGold’s] shares are performing in line with peers on the JSE.” Does this reflect a broader market thinking that AngloGold doesn’t belong in the same company as Newmont? Perhaps not quite yet; perhaps never.The RMB Morgan Stanley analysts say: “AngloGold may never fully rerate relative to the global peer group — the portfolio exposure to both continental Africa (about 67% of production in AngloGold’s 2025 financial year) and LatAm [Latin America] (15% of FY25 production) demands a higher geopolitical risk premium, in our view.”Golden linings?Gold Fields CEO Mike Fraser is hoping to convince investors that there’s another side to the firm’s headline-grabbing A$3.7bn takeover of Gold Road Resources.He’s frustrated that most of the attention has been on the 43% premium his company paid. Scheduled for completion in October, the transaction has unappreciated economic and mining benefits, he says.“We keep on getting told this is a full price. But there are a couple of things that aren’t well understood in the bid price.”One is that Gold Fields will no longer be required to pay a royalty to Gold Road for sharing Gruyere, a 350,000oz a year gold mine in Western Australia.Second, there’s a $300m tax advantage as Gold Fields can depreciate Gruyere across all its assets.However, the biggest benefit is still in the ground. Resources owned by Gold Road but not part of the 50/50 joint venture between the companies, in place since 2018, represent potential upside, especially as gold companies around the globe are paying serious amounts for replacement and growth ounces.Last year, gold deals accounted for 70% of dealmaking by value in the mining sector, according to a report by S&P Global Ratings. This year alone, China’s CMOC bought Lumina Gold for $581m; Ramelius Resources, an Australian firm, unveiled the $1.5bn takeover of Spartan Resources; and Royal Gold, a royalties company, agreed to conclude two acquisitions worth $3.7bn.Of particular interest to Fraser are two mini-pits — the Gilmour and Smokebush prospects. “Those will now fit into our development plan for Gruyere,” he says. The benefit of including these resources is it delays the pushback of the Gruyere open-pit.“All of these we see as upside options to the underlying value. So even though we moved to the second bid, it was really just tracking how the gold price had shifted,” says Fraser of the Gold Road deal. “If you look at where we think gold will hold over the next two years, the additional value will be baked in very easily.A version of this article first appeared in the Financial Mail.The post Wind in their sails? How AngloGold and Gold Fields stack up appeared first on Miningmx.
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