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Inflation or deflation...gold, silver and their shares – here is a gem being given away.

15 May 2009
Written by: Etiam rhoncus

Now, there are some great looking South African miners that are pulling gold out of the ground at values that can’t be overlooked.

The miner that I have for you today currently reflects a price for gold of a mere $161! That’s about one-sixth the going price for an ounce of gold in the open market. It’s up from $15 to $32 but on the way to $50.

AngloGold Ashanti, Ltd. (AU: NYSE), headquartered in Johannesburg. With a market capitalization of about $11 billion, AGA controls about 68 million ounces of gold reserves (the currently recoverable fraction of its total 229 million ounces of gold resources), plus about 36 million ounces of silver reserves and over 42 million pounds of uranium reserves. AGA is not a pure-play South African firm, either. It runs 20 mining operations located in 10 countries on four continents, together with a substantial project pipeline with a global exploration program.

AGA has a large portfolio of long-life, relatively low-cost mines. The ore bodies offer a variety of geologic conditions and are located in mining-friendly, gold-producing regions around the world.

What has happened with AGA to make it an attractive investment going forward? CEO Mark Cutifani came to AGA from another mining firm in late 2007. And Cutifani spent his first year on the job tackling an array of tough mining and business issues.

Cutifani recently announced that AGA has restructured its operations to reduce overhead and build up the margins. AGA has promised to increases its margins from $18 in 2008 to $238 at a cash cost of $440 per ounce in 2009. (And gold is currently going for over $900 per ounce.) So Cutifani believes that AGA can generate $1.1 billion in free cash flow from operations in 2009 and deliver returns on capital in excess of 10%.

AGA is going to need that cash flow because one if its next milestones will be to go after the rich “reef” gold deposits that lie more than 16,000 feet (about 5,000 meters) deep within the Witwatersrand Basin of South Africa. High gold price and advances in technology will make it possible. So AGA has adopted a long-range program to improve its mine discipline. The company is embarked on a five-to-10 year program of research and development for new deep-mine techniques.