Newmont Mining Corporation vs. AngloGold Ashanti Limited
We compared two senior NYSE listed gold miners to determine which is appropriate for aggressive investors and which is appropriate for conservative investors. We found Newmont Mining to be more suited to conservative investors and AngloGold Ashanti to be more suited to aggressive investors.
In comparison to AngloGold Ashanti, Newmont Mining has grown its ROE, based on Free Cash Flow generated, from negative levels in 2007 to 19% by December 31, 2010 whereas AngloGold Ashanti has grown its ROE from negative in 2007 to 44% by December 31, 2010. However, as Graph 1.1 and 1.2 demonstrate, Return on Investment (‘ROI’) to investors is relatively similar at 8% for Newmont and 9% for AngloGold Ashanti. This is due to AngloGold shares rising more rapidly than Newmont’s over the period. Whereas Newmont shares are priced at 2.3 X book value, AngloGold shares have risen to 5X book value. With the benefit of 20/20 hindsight, investors would have been better off holding AngloGold Ashanti shares. However, now investors are accepting additional risk from AngloGold share for a similar return profile to Newmont.
A few other issues are apparent when we compare the two companies based on ROE vs. ROI trends;
• Both companies are delivering increasing Cash Flow (“CF”) returns to investors which is to be expected given gold’s rise from $900 in late 2007 to $1,400 range in late 2010. Both companies also have exposure to other minerals such as Newmont’s copper assets and AngloGold’s uranium assets.
• AngloGold shares are more volatile than Newmont when charted against CF as indicated by the greater deviations between ROE and ROI. Therefore, AngloGold involves a higher degree of speculation in their shares.
• AngloGold is currently more profitable than Newmont on an ROE basis and this premium return is priced into the shares.
Graph 1.1
Graph 1.2
Additional perspective can be gained between these two major mining companies from our charts of pricing and value benchmarks of 19 gold miners with African operations at www.CFMonitor.com. Conclusions from CFMonitor include:
• Newmont has a larger gold resource base than AngloGold with 129 million resource oz compared to 71 million oz for AngloGold.
• Newmont’s cash costs are cheaper than AngloGold at $575 vs. $635 per oz according to our estimates.
• Newmont is a globally diversified miner whereas AngloGold is more focused on the high growth African continent.
AngloGold is currently dealing with South African strikers, which we believe is a transitory issue, however, wage demands and rising cost structures are issues that all gold mining investors need to watch with concern.
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