Index

INTRODUCTION....................................................................................................... 1
INTRODUCTION OF THE COMPANY..........................................................................2
FUNDAMENTAL ANALYSIS........................................................................................ 3
TECHNICAL ANALYSIS:............................................................................................. 6
RECOMMENDATIONS............................................................................................. 10
Bibliography......................................................................................................... 11

INTRODUCTION

As South Africa is a country amidst the list of prominently rising economies, that is, the
BRICS economies, a number of individuals have sought out to secure a better financial
status. The investments market has thus slowly ameliorated due to evident high return on
capital. People have different reasons for investing. For some it is mainly to grow their wealth
while for others, a way of protecting their income from depreciation due to current high
inflation of 6.3% (Trading_Economics, 2014). Trusts, fixed deposits, property and shares are
regarded of pretty high value.
This project therefore, seeks to evaluate an investment opportunity for shares in a company
that will be stated in the next section. This assessment is based on the fact that many a time
people or enterprises venture into investment opportunity based on speculation, and are not
knowledgeable regarding a companys financial position and performance (Russel, 2012).
After performing a thorough financial analysis, an informed decision will be taken on whether
to purchase shares or not.
The procedure to be used in the financial analysis will be that of using data from the
statement of comprehensive income and the statement of financial position. These will be
used to generate the appropriate financial ratios for the latter company for the past five
years, which are 2009 to 2013. To add on, a technical analysis will also be used in order
determine the optimal period in which shares of the company would be purchased. The
fundamental and technical analysis will thus form the basis of argument as to why shares of
the company should be bought.

INTRODUCTION OF THE COMPANY

The shares that are being evaluated are those of AngloGold Ashanti LTD. This company is a
global gold mining company, with the headquarters in Johannesburg, currently under the
management of Chief executive officer- Srinivasan Venkatakrishnan. It was formed in 2004
by the merger of AngloGold and the Ashanti Goldfields Corporation. AngloGold Ashanti
Limited is now a global gold producer with 20 operations on four continents. The AngloGold
journey began in South Africa in May of 1998, when the gold and uranium mining interests of
Anglo American Corporation of South Africa were consolidated. In August 1998, AngloGold
became the first South African company to be listed on the NYSE (Anon., 2014). Due to the
double listing in the New York stock exchange and the JSE stock exchange, the shares of
the company may be perceived as blue chips with an elite status (Van den Berg, 2011).
With regard to gold production, AngloGold Ashanti produced 4.1Moz of gold in 2013,
generating $5.5bn in gold income, utilising $1.62bn capital expenditure (Anon., 2014).
However, AngloGold Ashanti reported an almost 40 per cent decline in its full year earnings
in 2013 (Esipisu, 2014).This is probably attributed to the fact that 2013 marked the best year
of safety performance in AngloGold Ashanti history, providing an anchor for solid production
and cost results amidst a challenging gold price environment, wage negotiations in South
Africa, and a significant restructuring of corporate and operating cost. Therefore a decline in
the profit does not necessarily reflect their financial position or performance. Given this, a
proper and thorough financial analysis is still required in order to assess the value in
purchasing the shares of the enterprise.
The future prospects of the company include corporate restructuring within management
positions. It intends to recapitalize as a result of high levels of debt, targeting gross proceeds
from the contemplated rights issue of approximately US$2.1 billion in order to be able to
pursue the Restructuring. The proceeds would be used predominantly to repay existing debt
by initially redeeming 35% of the aggregate principal amount outstanding of the companys
2020 8.5% bonds under the provisions of the related indenture that allows the company to
redeem bonds from the net cash proceeds of an equity offering (Anon., 2014). In fighting the
challenge of gold price drop, the company should be able to recover from low income
incurred in the previous financial period.
Even though there is perceived growth estimated in the year 2014, it does not however justify
the purpose of buying shares in this company. For this reason, the technical tools which
follow, should be able to assist in whether or not the shares of this company are a sound
investment.

FUNDAMENTAL ANALYSIS
The fundamental analysis is a tool that is used to assess the intrinsic value of a companys
shares by considering the current and estimated financial performance of the enterprise. The
use of financial ratios with the aid of the statement of comprehensive income and statement
of financial position of AngloGold Ashanti ltd shall be used to assess the value of the shares.
ANGLOGOLD ASHANTI
LIMITED (ANG)
Report Date: 14 Sep 2014
03:40:30 PM
Pre-defined As Published General Ratios
Company
ANGGOLD
(December)
Book Val / Share (c)
Current Ratio
Debt / Assets
Debt / Equity
Dividend / Share (c)
Dividend Cover
Dividend Yield %
Earnings/ Share (C)
Earnings Yield %
Operating Profit
Margin %
Price / Earnings
Price / Share (C)
Quick Ratio
Return On Equity %
Total Assets / Turnover
Return on Average
Assets %
Return on Average
Equity %
Source: (INET_BFA,
2014)

2013

2012

2011

2010

2009

7,983.7
4
1.8
0.16
0.5
48.24
4
0.39

12,021.
14
1.37
0.18
0.42
292.38
8.31
1.11

10,586.
65
2.73
0.33
0.69
380
7.3
1.05

6,882.9
1
1.77
0.4
0.93
145
1.79
0.43

192.98
1.54

2,430.9
9
9.24

2,773.0
0
7.65

259
0.77

5,951.2
9
0.52
0.56
1.86
130
-14.46
0.41
1,880.0
0
-5.9

-37.53
64.85
12,515.
00
0.9
-66.94
0.55

21.04
10.82
26,303.
00
0.71
14.8
0.51

34.9
13.08
36,257.
00
1.6
27.9
0.59

8.69
129.46
33,530.
00
0.86
2.43
0.65

-3.93
-16.94
31,840.
00
0.37
-12.81
0.45

-36.98

11.94

23.83

5.21

-1.72

-114.48

15.76

33.86

2.67

-12.41

Return on average assets %: This measures the ability of a company to turn assets into
profit. It measures how effectively the total assets of the enterprise are used to generate
income. Since the year 2009, the company has experienced an increase in return on
average asset. Since the depression in 2009, AngloGold Ashanti has hardly coped as this
ratio has been fluctuating, but it has in general, improved gradually over the years. There
was however in 2013 a 36% decrease in the ratio, which can be apportioned more to the
3

investment in safety that the company is moving towards and the share drop in gold price in
the industry. The -36% figure remains discouraging to any investor.
Return on average equity %: This refers to the rate at which a return is made on the
investment of shareholders. In simple terms it is a ratio that assesses whether theres
enough profit generated to compensate for the risk of being in business (Julie, et al., 2013).
AngloGold Ashantis return has been a pretty low one as it has dwindled severely especially
in the previous year. This therefore does not compensate the risk of investing in the
company. There is however further scrutiny needed in order not to lose out on a good
investment as the company has been reputable in past years. It managed to increase this
ratio by 121.5% in 2010.
Operating profit margin %: This profit margin is one that is used to determine what
percentage of turnover is realised as profit after all preliminary expenses have been taken
into consideration. The higher the operating profit margin, the better financial position the
business is likely to have. The company has maintained a sufficient operating profit margin at
an average of 4.74, a few decreases in certain years. The positive value over the years
indicates a general effectiveness in the realising profit from turnover, thus the firm is
profitable. Despite all this, investors are looking to maximise profits hence the higher this
ratio is, the more likely individuals are prone to purchasing its shares.
Current ratio: This is one of the most important liquidity ratios as it assesses the businesss
ability to meet short term liabilities (Van den Berg, 2011). It focuses more on the ability of
AngloGold Ashanti LTDs to cover its liabilities or obligations such as salaries and loans to
mention a few. Failure to do so shall render the companys reputation as poor. According to
Julie Poznanski, A ratio less than 1 may indicate liquidity issues. a very high current ratio
may mean there is excess cash that should possibly be invested elsewhere in the business
or that there is too much inventory. Most believe that a ratio between 1.2 and 2.0 is sufficient
(Julie, et al., 2013).Therefore in the case of AngloGold Ashanti which has a current ratio in
the range of 0.52 and 2.73 from December 2009 to December 2013, a positive prospect is
noted of the company. Yes, in 2009 the company may have recorded a 0.52 ratio, but due to
the recessionary economic climate appropriated to that year, it is expected and thus an
investment in the shares of this company may grow wealth. There is however a drawback in
that the current ratio does not take into account the time that will elapse between settlement
of obligations and preparation of statement of financial position. This means that if it settled
its liabilities after a week, the current ratio could be an overstatement
Quick ratio: This is also a liquidity ratio that is used to assess the enterprises ability to meet
short-term obligations. The only difference when compared to the current ratio is that it
excludes inventory from the current assets. Quick ratio specifies whether the assets that can
be quickly converted into cash are sufficient to cover current liabilities (CCD. Consultants,
2009). During the five year period from 2009, the quick ratio has been below 1, with
exemption to the year 2011. This is an indication that the company relies too much on
inventory value and other assets to cover liabilities. Due to high risk involved in relying too
much on inventory, an investor ought to be cautious not to invest in a company of this sort.
This is because depending on the type of good being sold, there is never a guarantee that
the closing inventory will realise sales.

Total assets/Turnover: This ratio basically measures how efficiently assets are utilized in
order to generate sales. Total asset turnover ratios are more desirable to any enterprise.
AngloGold Ashanti has had a fluctuating figure in the past five years as per published
financial ratios. If the ratio is increasing subsequently, that signals productive utilization of
assets. However in this case, it becomes difficult to determine whether investment in shares
will recognise higher returns due to lack of continuous growth of the ratio.
Debt/Assets: This is a solvency ratio that ideally assesses the relation that debt capital has
with total capital of the enterprise. It conveys the portion of capital that is funded by debt
capital (Van den Berg, 2011). The aim of every company, including AngloGold Ashanti, is to
maintain the lowest percentage as much as possible. AngloGold Ashanti, within the dwindling
economic climate of South Africa has managed to gradually decrease their debt/asset ratio
over a period of five years from 0.56 to 0.16, which is a very good figure. This suggests that
the company has sufficient assets to cover its debt capital obligations without diverting cash
flow.
Debt/Equity: This ratio is basically meant to compare the capital invested by owners with
that funded by lenders (Julie, et al., 2013). Over the past five years, this company has
managed to lower this ratio from 1.86 in 2009 to 0.5 in 2013. This signals to investors that
the company effectively manages its debt payment. It can therefore be seen as a less risky
investment as its places priority on its investors.
Earnings/share: This is one of the most important ratios in financial analysis as investors
use it to determine how many share of this company to add to their portfolio. The higher the
earnings per share, the more investors are likely to buy more shares of this company, and
thus making more capital available to AngloGold Ashanti through a rights issue. The
company has averaged an earnings/share of 755.194 cents/share, which is a very good
representative of the companys ability to generate income for its investors.
Earning yield %: This represents earnings generated by shareholders based on share price
at market value. It determines the tradability of shares, most importantly the shares value in
the stock market. With an average of 2.66%, AngloGold Ashanti is still far off from the top 10
resource shares earnings yield of 6.1% (Mildenhal, 2012). However, it has exceeded
the 6.1% in 2011 and 2012, which means the company has the potential to rise
and secure a better financial position despite the 2013 fall.
Price/ earnings: most of the time investors are interested in exactly how much they are
going to pay to attain a certain return. This ratio determines exactly that. This ratio has
increased a lot over the five years. It is probably because of the high fluctuation of AngloGold
Ashantis share price and thus many investors may trade the shares of this company a lot,
thus its shares are highly valued in the stock market.
Book Value/ share: this calculates value of the shares of this company given all its debts are
paid in full exempting immaterial like goodwill and patents from calculation (Van den Berg,
2011). The average of 8685.146 cents/ share for five years is a clear indication that the
company has many liabilities as shares have more value when not it is assumed that all the
liabilities have been settled. It therefore questions the companys solvency.
Dividend yield %: This is almost the same with earnings yield as it considers the market
value of share in the stock market. The higher, the better the financial position of the
5

business. This ratio has a very positive outlook based on the fact that it has been a positive
figure throughout the five years. This then can encourage investors to purchase shares as
they are guaranteed dividends every year, seeing this company has declared every year.
Dividend cover: This is an assessment of the firms ability to accommodate its ordinary
shareholders dividends (Van den Berg, 2011). If a firm is able to do like AngloGold Ashanti
does, based on the past four years, it becomes reassuring that the frequency of payments
will continue. This company however has very low ratio in this respect, which then makes it
unreliable especially with its non-distributable and distributable reserves reaching -$866,000
and -$3,061,000 by year end 2013 (INET_BFA, 2014). This company has no financial
security at all.

TECHNICAL ANALYSIS:
The technical analysis is an overview of the market oriented events such as the movement in
share price, indices and volumes. This is based on the theory that past trends tend to repeat
themselves, thus providing investors with the ability to predict the future value of shares
using relevant tools (Van den Berg, 2011). The technical analysis tools allow economic
cycles to be forecasted, purchasing time to be determined, quantifying of risk and
determination of speculative activities. In this section were going to try and use these tools to
decide when shares of AngloGold Ashanti (LTD) ought to be bought.
The current economic climate of South Africa sits at 6.3% inflation rate, this means that value
of money is depreciating at a faster rate (Trading_Economics, 2014). This will therefore fuel
speculators to take a chance in low priced shares with the hope that they will eventually
increase in order to realise profits.
a) Overall share index: this is the compilation of all industry based share prices. It
represents the movement of the equity market. the following reflects the all shares
index movement in the South African stock market as compared to the share price of
AngloGold Ashanti:

ANGLOGOLD ASHANTI LIMITED (ANG)

Open: 14637 High: 14787 Low: 14339 Report Date: 19 Sep 2014 04:26:23 AM
Price history - ANG (18 Sep 2009 - 18 Sep 2014)

According to Charles Dows theory, the trend thats feasible in the JSE all Share is that of an
increase in the economy, which is called the bull market (Van den Berg, 2011). The general
movement shows the increase in share value of most of the other firms. However, the trend
AngloGold follows is that of dropping share value since the beginning of 2012. This dilation
then would incline the trend to be classified as a secondary trend as the share prices are
moving in opposite directions. Looking at the period from January 2012, it is not advisable to
buy shares of this company. It is usually speculators who pick this time to purchase shares
as there is hope that they will increase in value soon, and thus putting capital at risk. A
7

technically weak market implies that theres uncertainty in the movement of shares in the
long term, hence investors ought to be very careful.
b) Relative strength: This graph is meant to aid investors further in comparing the
share trends in the movement of share price in the JSE all shares, the mining sector
and the subject AngloGold Ashanti. This is because it is necessary to assess the
relativity of the all movements.

ANGLOGOLD ASHANTI LIMITED (ANG)

Price history - ANG (18 Sep 2009 - 18 Sep 2014)

Open: 14637 High: 14787 Low: 14339

Report Date: 19 Sep 2014 04:28:56 AM

As can be seen in the figure above, the trends are all moving different directions. Relatively
to the mining sector, the share index of AngloGold still shows lower prices indices. However
there is correlation in the performance of the whole mining sector. Both trends portray
fluctuations of share price in low ranges. Therefore even though AngloGold Ashantis share is
being out-performed by the relative mining industry, there is slight difference. Therefore this
market is more accommodating for short-term speculators. The period is not appropriate for
long term investments.
c) Point and figure graph: Analysts use this graph to indicate the price trend without
any time dimension as will be seen with the bar chart. The purpose is basically to
show the trend in the share price during any given day over a specific time.

ANGLOGOLD ASHANTI LIMITED (ANG)

Price history - ANG (18 Sep 2013 - 18 Sep 2014)

Open:14637 High:14787 Low:14339 Report Date: 19 Sep 2014 04:32:30 AM

In the past year, the companys share has generally been fluctuating, but there has of
course been an increase in the share value. The share price increases first, then decreases
and increases again. This can be classified as the quadruple peak trend. The price does not
go back to the lowest point when it falls; therefore, the share is increasing in value. This is a
strong buy signal. The top most part of the graph is not a straight line as well. Therefore this
is an indication to purchase share in this period.
d) Bar Charts: this is one of the instruments that are used by analysts in determining
when to buy shares of a company. In this graph, every month, year or day, there is a
visual presentation of the lowest, highest and closing price index. This then helps
investors in scrutinizing the market value movement of the share.

ANGLOGOLD ASHANTI LIMITED (ANG)

Open:14637 High:14787 Low:14339 Report Date: 19 Sep 2014 04:45:34 AM
Price history - ANG (18 Sep 2013 - 18 Sep 2014)on next page

(INET BFA, 2014)

As can been seen, the last graph and data provided above, the share price was in the
following order: Opened: 14637 Highest: 14787 Lowest: 14339. Therefore, for that day there
has been a slight increase in the share price. And generally looking at the trend, the price
has indeed increased over the last year. The trend followed by the index of AngloGold
Ashantis share price is classified as pennant. This is also a buy signal as it portrays potential
increase in the share value of AngloGold Ashanti.
e) Share price plus moving average: this is a viable source of long-term assessment
of the companys share price performance.

Report Date: 19 Sep 2014 04:47:24 AM

ANGLOGOLD ASHANTI LIMITED (ANG)

Price history - ANG (24 Jul 2013 - 18 Sep 2014)

10

This smooth yellow and purple lines act as indicator that alleviate the ambiguous
misrepresentation of the future performance of the share index. The red graph represents the
bar chart that can foster high expectations due to high points reached. The two lines are
indicators which show convey the future index of the share price. The moving average
averages the subsequent 20 and 40 days to provide an estimate of the future, which helps
dismiss a large proportion of risk. As seen in the graph the yellow graph line comes before
the red line indicate a relevant rise or fall in the share price. With this regard, the up
movement of the yellow line before the red line is a buy signal. However, theres a sell signal
shortly after that, during the month of July 2014.
RECOMMENDATIONS
A lot of risk accompanies any investment. This is geared highly by lack of knowledge and
useful instruments. AngloGold Ashanti is a company within the mining industry, which is a
highly profitable industry in general. However, this company assessed with the fundamental
analysis has a very poor return on the assets ratio, low solvency and highly indebted. It also
currently has a very poor return on equity of -66.94. Of all, the most notable ratio, the
company maintains a low ratio of dividend cover. This means that in the near future the
company may be unable to declare any dividends and hold absolutely no non-distributable
and distributable reserves, thus it can easily be declared insolvent and losses would be
incurred further.
The reasons could be that the share prices have dropped in the mining industry and that the
company has invested in safety equipment. But it does not also help that, the companys
technically performs so poorly as well. Even though the market is in a bull economy, the
share price trend of AngloGold Ashanti is gradually dropping and thus becoming less and
less an attractive investment opportunity.
In conclusion, investment in AngloGold Ashantis shares is purely discouraged as theres
evidence that the companys financial position is a very risky one. Speculators can, despite
the overview of the companys performance, still realise profits from the fluctuation of share
index, especially through the process of arbitrage as it is double listed.

11

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Mildenhal, l. S., 2012. Things are looking up: Comment by Allan Gray. [Online]
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