When a company tells you that it’s likely to do badly, it’s a good idea to pay attention. That’s what happened with Anglogold Ashanti (NYSE:AU), who declared that its earnings report was likely to be an unpleasant read. Worse, that’s for the first half, which is a particular disaster for a gold stock looking at a recessionary environment. That was enough to prompt a loss of better than 10% at one point in Tuesday afternoon’s trading.
The latest word from Anglogold Ashanti is that it’s looking at an earnings per share figure of between $0.30 and $0.37 per share, which represents about $125 million to $155 million in earnings. Okay, not bad so far…until you look at the same time last year. When Anglogold Ashanti was pulling in $300 million for an EPS figure of $0.71. Basic earnings come out even worse. The projected range is $25 million to $54 million, for an EPS of between $0.06 and $0.13. This time last year: $298 million and $0.71 per share.
The reason for this catastrophe in the making, meanwhile, is simple: the huge cost of environmental regulations. AngloGold expects to shell out another $38 million—roughly $0.09 per share—to address “legacy tailings storage facilities,” or facilities that store what’s left over after gold mining processes take place. Plus, there’s the matter of inflation throughout the industry that sent costs up another $111 million, and growing investment in finding new gold to mine. So while Anglogold is, indeed, on the gold—it’s going to put out marginally more gold against this time last year and in higher grades—the end result is still a lot more cash out the door.
While that sounds like bad news, it’s not discouraging hedge funds much. Hedge funds added 557,300 shares of Anglogold Ashanti stock to their holdings in the last quarter, which makes for a confidence signal of “Positive.” This is also the second quarter running that hedge funds stepped up their purchases.
