AngloGold Ashanti Limited (AngloGold) reported healthy top-line growth
in 4Q 07 and FY 2007,
primarily due to higher average realized gold prices. However, growth
in revenues was partially offset
by a decline in the production levels. However, higher gold prices
forced the group1 to incur heavy
losses on its derivatives and other commodity contracts during the
quarter. In addition, higher input
costs, arising from sector-specific inflationary pressure, squeezed
margins during the quarter, leading
to operating losses in 4Q 07. Furthermore, we expect that the current
disruption to power supplies
within South Africa to negatively impact total near term production
levels. However, we expect the
group's ongoing expansion projects to enable it to sustain gold output
levels in the medium to long
term. In addition, we remain optimistic about the ongoing strong gold
prices over our investment
horizon, leading to top-line growth, going forward. Nevertheless, we
expect the positive impact of
higher gold prices to be partially offset, going forward, by the
group's exposure to hedging contracts set
at prices below our spot forecasts. As a result, we believe that the
ADR is trading above levels
supported by its fundamentals; therefore, we hold a negative outlook
for the ADR over our investment
horizon.

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