The shine is back
As gold miners enter an upswing, some may be tempted into making acquisitions
‘‘ AFTER REPAYING DEBT, EXCESS CASH SHOULD BE RETURNED TO SHAREHOLDERS NIC STEIN, CORONATION
SA’s three biggest listed gold companies paid down debt and started to pump cash in the first half of the year, while gold prices and local currencies were favourable.
With fatter purses, they may develop an appetite for acquisitions.
AngloGold Ashanti, Gold Fields and Harmony Gold boosted profits in the period to June as strong dollar gold prices were accompanied by weaker currencies in the countries where they own mines, reducing their operating costs.
AngloGold has reduced its net debt to US$2.1bn from $3.1bn over the past year and its net debt to adjusted earnings before interest, taxation, depreciation and amortisation (Ebitda) was at 1.44 times by end-June, well below its bank covenants of 3.5 times.
AngloGold had $1.8bn of undrawn facilities at end-June.
AngloGold’s SA and African mines together accounted for two-thirds of total production of 1.745m oz in the six months to June, when its all-in sustaining cost (AISC) was $911/oz. It gen- erated $108m of free cash against $31m last year.
Gold Fields’ net debt fell to $1.16bn at the end of June, from $1.4bn at end-December. It recently refinanced its credit facilities, which are now $1.3bn, with a maturity of June 2019. Its net debt: Ebitda ratio was 1.05:1 and it expected to be at its target of 1:1 by year-end. It generated $60m of cash in the six-month period, compared with only $1m in the same period last year.
The highlight for Gold Fields was a solid performance from the long-troublesome South Deep mine in SA, which contributed 140,000 oz to total group production of 1.04m oz in the six months.
Gold Fields’ AISC was $992/oz.
Harmony has halved its net debt to $74m over the past year and the net debt: Ebitda ratio was below 0.5 at endJune. To create cash certainty, it has entered into a short-term hedge for about 20% of its production, which, though limited, is still a bold move considering the deep difficulties that gold miners experienced from hedges 10-15 years ago. So far it has paid off.
Harmony’s gold production was flat at 1.08m oz for the year, but easing cost pressures reduced AISC to $1,003/oz from $1,231/oz last year.
Although there are plenty of buyers chasing a few goodquality companies, driving up prices to unrealistic levels and making it hard to conclude deals, there are some possibilities.
Gold Fields was reported by Bloomberg in June to be considering buying AngloGold’s Iduapriem mine in Ghana, which is close to its existing operations. In July, Reuters quoted sources saying Barrick Gold had approached SA gold companies that might be interested in buying its 64% stake in Acacia Mining.
Acacia, which has three gold mines in Tanzania — Bulyanhulu, Buzwagi and North Mara — and exploration projects in Burkina Faso, Kenya and Mali, expects to produce between 750,000 oz and 780,000 oz of gold this year at a cost of $950-$980/oz. Acacia’s market capitalisation on the London Stock Exchange is about £2.4bn, which means 64% could cost about R26bn.
A premium for a controlling stake is usually required.
Gold Fields CEO Nick Holland says the group is looking in different places for acquisitions, but he did not wish to be drawn on specifics, including how much Gold Fields has available to spend.