According to the general belief, gold has been the yardstick for major investment decisions as it is the most stable commodity in the market. Thus, it is not surprising that investors in gold usually do well in nearly every fiscal quarter or year barring any volatility induced by stoppages in production.
Interestingly, one gold stock that perfectly fits the bill of a rising gold stock is AngloGold Ashanti (NYSE:AU). The trend starts with the recent announcement of the first-quarter results, which saw the stock rising with adjusted earnings of $429 million. This is about $1.11 per share, which more than doubles the earnings for the same period in the previous year.
In essence, the first-quarter results clearly show that AngloGold Ashanti was able to rise even with the fact that production went down 6% to 981,000oz, due to the safety stoppages in South Africa.
However, in recent news, the company's board has given management the green light to embark on some developmental projects that will see production increasing. I need not reiterate the fact that an increase in the production of gold will invariably lead to an increase in revenue and ultimately an increase in the price of the stock.
Another smart move on the company's part is the decision to invest about $1.9 billion to expand the Creek and Victor mine in the United States over the next five years. The Creek and Victor mine, located in Colorado, should expect to experience an expansion approximately to the tune of $557 million. The expansion is to be focused on boosting the production of the mine to about 400,000 ounces.
The good news is that the projected mine-life extension is targeted to reach the end of this decade. Experts at AngloGold believe that the mine will continue to pour out a steady 400,000 ounces at least until the year 2025. However, the production of mine may drop after 2025, yet, it is not expected to drop to any level less than 350,000 ounces for the duration of another 10 years. This means that the potential of the Creek and Victor mine will be maximized until year 2035.
This news is a testimony to the fact that AngloGold Ashanti still remains a top pick among gold stocks, and is likely to remain the top dog barring any cataclysmic change. In another related development, the Mongbwalu and Kibali projects in the Democratic Republic of Congo, are also expected to benefit from the expansion capital. This will ensure an additional annual production increase of about 500,000 ounces for AngloGold Ashanti.
All of these go a long in setting AngloGold Ashanti as the leader of the pack with the expansion plans that are expected to bring production to the range of 5.4 million ounces to 5.6 million ounces come 2014. Thus, if you believe as I do that the bullion will rise with the wealth of the world, there is no doubt that AngloGold Ashanti will also continue to rise because it should continue to have gold to sell with every increase in the price of the bullion.
However, AngloGold Ashanti may be in for a tough time on its Mongbwalu gold mine in the Democratic Republic of Congo, with the news that about 200,000 artisanal miners are already on the 6,000 square kilometers mine digging and panning for gold. This places AngloGold Ashanti in a tricky spot because dealing with the artisanal miners, who are ex-combatants in the civil war, will take a good deal of diplomacy and tact.
Anything less that excellent diplomacy and tact could result in a full-blown conflict that may render the mine inoperable for a long time to come. However, AngloGold Ashanti already recognizes this for a fact and it is trying to resolve the potentially nutty situation without making a fuss. In the words of Richard Peattie, general manager of the Mongbwalu project, "It's an immense challenge and we recognize that."
Nevertheless, the outlook for the competitors of AngloGold Ashanti such as GoldCorp (NYSE:GG), Newmont Mining (NYSE:NEM), Barrick Gold (NYSE:ABX) may not be as good. This assertion is justified in lieu of the fact that the demand for gold by China may be dropping. According to research carried out by Bloomberg, it seems that Chinese consumers and investors are changing their beliefs about gold being a stable commodity on the market.
The report, while not presenting its finding as fact, was able to assume that the demand for gold in China may be on a decline. This is based on the reports from a series of interviews that Bloomberg's correspondents have had with jewelers and consumers in Shanghai and Hong Kong. According to the report, China seems to think that steady drop on the price of gold is likely to continue and any further investments in gold will see them losing money with such a steady drop.
Nonetheless, the fact remains that if this report should be substantiated with a commensurate decline in demand, then Newmont Mining, Barrick Gold and GoldCorp may be in for a tough challenge because they will need to look for other markets for their gold.
In another development, Vale (NYSE:VALE) is also in for tough time, with the recent policy adopted by the Argentine government, which is set to bring stricter regulations for gold miners in the country. The new regulation requires the miners to purchase more Argentine products, otherwise, they may face strict penalties. In fact, Vale has been given 15 days to present a new business plan that will show that it is committed to an increase in its purchase of Argentine products.
However, buying Argentine products is not the problem, after all, corporate responsibility requires that you do some business locally. Notwithstanding, buying Argentine products is likely to increase overhead costs and cost the price of the stock to fall. Interestingly, everything regarding the products that the miners are supposed to buy and the penalties that await them if they default is still under speculation.
In essence, given the challenges that the competitors of AngloGold Ashanti are likely to face now and in the future, it is clear that AngloGold Ashanti is well positioned to rise. More so, it may even leave its competitors behind in its wake as it rises. Based on the above information, I expect the stock to trade around $40 to $42 by early to mid 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.