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Barrick Gold Corporation (USA) (ABX), AngloGold Ashanti Limited (ADR) (AU) – Gold: Beyond Best Intentions

Increased capital expenditures (capex), falling gold prices, government policies

A report this month in The Ghanaian Chronicle ( indicated that the AngloGold Ashanti Limited (ADR) (NYSE:AU). Obuasi mine “is facing very grave operational and financial challenges…” The company’s CEO pointed out that AngloGold Ashanti Limited (ADR) (NYSE:AU) is pumping $30 million a month into this mine, which they cannot sustain. The Company’s 2012 capital expenditure at Obuasi was $185m. This represents an increase of 41% on the $132 million they spent in 2011.

It’s fine if significant increases in capex produce desired returns. However, investors should note AngloGold Ashanti Limited (ADR) (NYSE:AU)’s major capex outlays, and the fact that the Company is facing those “grave” challenges.

Furthermore, AngloGold Ashanti Limited (ADR) (NYSE:AU) specified that the fallingprices of gold, increased production costs, and growing pressure from the banks are also contributing to this operational and financial turmoil at Obuasi.

What’s behind gold prices falling? Part of it is that as people believe the economy is improving, or will improve, they feel less of a need to hunker down with gold investments. Some seek safe havens in precious metals as they see turmoil in the world economy; if they sense some sort of recovery is happening the supposed safe havens don’t have that allure.

Of course, there’s always government policy that mining companies must face. Investors should note that government policy can put a crimp in mining company expansion plans and initiatives. Consider the Philippines; the nations’ Department of Trade and Industry said this month that new mining projects no longer qualify for income tax holidays.

As reported in GMA News Online (, “In a March 26 position paper, the Department of Finance said income tax holidays for some sectors including mining should be removed.”

Mining for gold is not for the faint-hearted. The top companies in the industry understand this and investors should research how these companies address the challenges they face. Part of due diligence as an investor is researching the management teams of gold companies and the modified strategies they have in place when best intentions don’t always pan out.

The article Gold: Beyond Best Intentions originally appeared on and is written by Michael Ugulini.

Michael Ugulini has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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