No country for old mining heavyweights
The decision to sell and close mines contributing more than half of AngloGold Ashanti’s South African gold output was clearly the right one, no matter how emotional the action might be for what was once the bedrock of the company’s annual production.
The costs at these assets were dragging down the company and the large exposure to SA, with its dire regulatory framework, drastically rising labour and services costs, as well as declining output and falling grades, lower productivity and safety threats made the decision a logical one.
It has meant the once dominant gold miner in the country is a mere shadow of itself, with a single deep-level mine and a tailings operation. But the South African asset base allowed AngloGold to expand strongly in Africa, Australia and South America, making it the world’s third-largest gold miner.
The first-quarter results from AngloGold gave investors their first glance at what the company’s potential was without the burden of high-cost, unprofitable mines in SA, with the group’s overall cost base coming down to little more than $1,000 an ounce, giving it a 25% margin to the average received gold price during the three months.
The time had clearly come for AngloGold to do what it had been intending to do since its illfated attempt to separate its international portfolio from the local mines, creating two companies. The plan was thwarted by shareholders, but AngloGold’s board has come to the same point, albeit with a much smaller South African footprint and one much easier to sell if it decided to do so.
Unfortunately, the underlying message is that SA is no longer a gold destination for big companies. Mines are old and the operating environment is challenging and expensive. If anything, this should send a clarion call to the government to reconsider how it views the sector and incentivise it to stay operational as long as possible and retain tens of thousands of jobs.
Debt-laden gaming and leisure group Sun International is not exactly dangling a big, juicy carrot in front of shareholders for its proposed R1.5bn rights issue. The issue price has been pitched at R57.82 a share in the ratio of 25.34 rights offer shares for every 100 shares already held.
This represents the 10 trading day volume weighted average price of Sun International shares up to Monday this week.
The share price has since ticked up past R61, which is encouraging because punters believe raising R1.5bn is not enough, with borrowings sitting uncomfortably at R15bn.
The market may be taking heart from shareholder support and commitments “from certain entities” though. Presumably this means influential (and deeppocketed) shareholder Allan Gray is backing the rights offer.
These unnamed shareholders speak for almost 15.5-million rights offer shares, or R894m of its envisaged proceeds.
However, more intriguing is Sun International’s disclosure that it has entered into an underwriting agreement with Value Capital Partners, partially to underwrite the rights offer up to R750m. Value Capital Partners has popped up as a strategic shareholder at Adcorp and Altron, and clearly relishes a turnaround.
Sun International will certainly provide a thrill, with the costly Time Square casino development lagging behind initial trading expectations. Cash flows will need to come up trumps in the next 18 months.