Gold still los­ing its lus­tre

Finweek English Edition - - THE WEEK | IN THE NEWS -

an­gloGoldAshanti’s Septem­ber quar­ter fig­ures demon­strate am­ply why a year ago the group at­tempted – but failed – to hive off its SA as­sets into a sep­a­rate com­pany that would be di­ver­si­fied by in­vest­ment into other com­modi­ties.

That’s be­cause roughly 75% of cash flow in the com­pany was gen­er­ated by An­gloGold’s in­ter­na­tional as­sets, yet the per­for­mance of the SA mines was so poor that the com­pany burnt $56m in cash; that and the costs as­so­ci­ated with liq­ui­dat­ing a $773m bond early.

Srini­vasan Venkatakr­ish­nan, CEO of An­gloGold, must have recog­nised in 2014 that as stand­alone en­ti­ties, the SA as­sets would be volatile in per­for­mance and need the di­ver­si­fy­ing ef­fects of other com­mod­ity ex­po­sure. It’s a strat­egy be­ing fol­lowed by Sibanye Gold, which has bought plat­inum, and is con­sid­er­ing the sense of buy­ing coal as­sets, be­cause the div­i­dend out­look is so much bet­ter than just re­ly­ing on gold.

It seems both Sibanye and An­gloGold recog­nise – as does Har­mony – that SA gold mines don’t cut it on their own now: the as­sets are old and more dif­fi­cult to mine. Fur­ther­more, labour costs are now high in SA, while re­struc­tur­ing is very dif­fi­cult to get through gov­ern­ment and or­gan­ised labour.

Un­for­tu­nately for An­gloGold, the de­merger was turned down, so for the time be­ing, the group is faced with hav­ing to tame its lo­cal as­sets for the ben­e­fit of the whole group. This could prove prob­lem­atic.

“Our view is that SA does re­main a prob­lem and a turn­around needs to be demon­strated in or­der to drive a pos­i­tive rerat­ing of the stock,” said An­drew Byrne, a pre­cious met­als an­a­lyst for Bar­clays Cap­i­tal.

Gen­er­ally speak­ing, how­ever, An­gloGold has largely ad­dressed its net debt sit­u­a­tion and is po­si­tioned to pro­duce pos­i­tive cash flow pro­vided its SA as­sets can be op­ti­mised. The stock is trad­ing at a 50% dis­count to its peers – ac­cord­ing to Bar­clays Cap­i­tal – which should make it a buy de­pend­ing on how you view the ex­po­sure to SA min­ing. ed­i­to­rial@fin­

Geita, in north­west­ern Tan­za­nia, is the largest sin­gle gold min­ing op­er­a­tion within the An­gloGold group.

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