Is AngloGold Ashanti split, London listing back on the table?
AFTER AngloGold Ashanti’s disappointing first-quarter results and the company’s announcement that it is reviewing its South African operations, the question is whether a plan to split the company is being reconsidered.
The option was first proposed in 2014, but was shot down by shareholders.
The situation was a little different then — the gold price was at $1 255 an ounce and the company’s debt, at $3.7-billion, was almost equal to its market capitalisation.
Nonetheless, the plan to split the South African and international assets into two companies triggered a 15% slump in its stock price.
At the time, the South African operations were experiencing declining grades and production, and the mining industry was embroiled in intense labour unrest.
Three years later, the company has significantly reduced its debt, and labour relations have stabilised, but the gold price is languishing and production and ore grades continue to drop.
The effects of this were evident in AngloGold’s firstquarter results, which showed production from South African mines fell 16% to 198 000 ounces from a year earlier, and all-in sustaining costs increased to $1 327 an ounce while the company received an average price of $1 216 an ounce in the quarter.
AngloGold’s share price dropped about 2% after the results were released on Monday.
Even with a fatality-free first quarter for the company, production was still badly affected by its South African operations, which analysts said were not as attractive as its international business.
The company cited a slow ramp-up in production in the new year, fractured grounds that made it harder to mine and heavy rains, which impacted volumes.
On Monday, CEO Srinivasan Venkatakrishnan, referred to as Venkat, said its South African mines were under review.
This process would include investigating whether nonperforming mines — particular- ly Kopanang and TauTona — could be integrated under one infrastructure to lower costs and enable deeper cost-effective mining.
Venkat said some improvements had been made, with the company starting “to take initial steps, and those steps have started to bear fruit”.
But what those steps are, the company is not saying — and analysts want an explanation.
Sibonginkosi Nyanga, an analyst at Momentum, said Venkat was not clear and the way he addressed the review of the South African mines was still open to interpretation. Was it a sale, a split, an unbundling, integration or improvement of efficiencies — or a change in people’s line of work, he asked, because AngloGold’s South African mines had veered off agreed mine plans.
He added that despite the 2014 plan to split the business, “it doesn’t mean that those assets are not important to their portfolio. Those assets are still important and I believe they can still make them work.”
René Carlo Hochreiter, an analyst at Noah Capital Markets, said that if splitting the group was back on the table, it would still not solve the issue of the mines. He said it would be like running away from the problem.
“The company is not at risk because of its South African assets,” said Hochreiter.
He said if Venkat reconsidered the split, shareholders would still not be happy, and Anglo had not worked on these assets only to split them.
He said although an unbundling could work, the problem was that “the gold price is volatile and South Africa’s investment environment is terrible”.
Venkat said he would elaborate further later in the year and give a more conclusive answer on the outcome of the review.
In 2014, investors contested the company’s plan to separate AngloGold’s South African mines from its international businesses because they were worried about how much it would cost shareholders to split the two companies and establish a new entity, listed in London.
The proposed restructuring would have created the Londonlisted entity to house the company’s international assets, with South African assets remaining in AngloGold Ashanti. The move would also have meant its operations in Ghana and all other countries except South Africa would be managed by the new company.
The strength of the rand is also not making life easy for gold miners, which are also dealing with a volatile gold price — which is predicted to drop.
Sibanye has all of its gold mines in South Africa.
In its latest results, released last week, its all-in sustaining costs rose and the gold price in rand terms had declined, which resulted in its margin narrowing. Harmony Gold’s production report for the nine months to end-March, also released this week, showed that the company was well on the way to meeting its production guidance for the year, having produced 812 000 ounces of a targeted 1.05 million. In fact, the company is likely to go above and beyond its production guidance despite a drop in production in its Hidden Valley mine in Papua New Guinea.
Hochreiter and Nyanga concurred that AngloGold could catch up before the end of the year.
This is in spite of the fact that it suffered sizable drops in production in the first quarter and had decided to not change its
The company is not at risk because of its South African assets The gold price is volatile and SA’s investment environment is terrible
full-year production guidance.
Gold Fields might find it harder to meet its targets due to the massive decline across its operations.
After its results this week, AngloGold was downgraded by three analysts, who cited a slow turnaround.
Of the analysts who rate the stock, 13% recommend selling it, 33.3% have a buy rating on it and 53.3% recommend holding it, according to Bloomberg.