Impairments hit Anglo Gold

• Miner expects to report a slide into the red despite having a strong year in which production increased

Anglo Gold Ashanti’s strong 2017 operational performance will be overshadowed by a noisy set of financial results reflecting impairments, restructuring costs and a provision towards a settlement agreement in a class silicosis action in SA pushing the company into a loss.

Anglo Gold Ashanti’s strong 2017 operational performance will be overshadowed by a noisy set of financial results, which are reflecting impairments, restructuring costs and a provision for a settlement agreement in a silicosis class action in SA pushing the company into a loss.

Anglo Gold, one of the world’s top five gold miners as measured by production, said operationally it had a strong year, generating more gold despite the unsettled nature of its South African operations, with its Kopanang mine headed for closure with Tau Tona mine, with an expected loss of 8,500 jobs.

In 2017, Anglo Gold produced 3.755-million ounces of gold compared with 3.628-million ounces the year before. It said its costs were within guidance.

Its financial performance was less stellar, with the wellflagged costs of restructuring and a chunky provision to end a legal process with sick workers muddying the waters and sending its shares down 3.5% to a session low of R127.80. By the close of trade, the shares were 0.6% lower.

Anglo Gold said that it would report a basic loss of $180m$200m for the year to end December compared with basic earnings of $63m for the previous year.

Its headline earnings, which exclude once-off items, were forecast to be in a broad range of $16m to $38m compared with headline earnings of $111m the year before.

It impaired and derecognised a number of its South African assets as it halved annual production after the sale of mines, with the local assets expected to generate 450,000oz and account for 14% of group production. Basic earnings were down $221m because of the restructuring and disposal programme in SA, while retrenchments cost Anglo Gold $71m. Anglo Gold will show an impairment charge of $110m against the assets it is selling.

After the disposals, Anglo Gold will have just its ultradeep Mponeng gold mine and its tailings retreatment business left in SA as it focuses on its offshore asset base for growth.

Anglo Gold made a $46m provision towards the pending settlement agreement of a class action brought by sick miners against gold companies. All gold companies mentioned in the matter have made provisions towards setting up a fund to assist workers whose lungs were irreparably damaged by breathing in silica dust.

A settlement estimated at R5bn is thought to be close between gold mining companies and lawyers representing tens of thousands of former mine workers. The settlement will be paid into a trust that will be used to locate about 100,000 former mine workers.

The Viceroy report on Capitec was, according to informed and independent individuals, an unimpressive piece of work.

Poorly researched and too many dots connected by opinion rather than facts, was how one industry expert described it.

It wasn’t that the report didn’t reflect important critical problems with Capitec’s business model, but they got lost in the broad swipe at the company.

This isn’t the first time many of these issues have been raised. In 2014, shareholder activist Theo Botha pitched up at the group’s annual general meeting to interrogate the board about its unsecured lending policies.

“We don’t lend to social grant recipients, we have a large chunk of retail funding and our provisioning is far more conservative,” Capitec CEO Gerrie Fourie said at the meeting.

Most of the shareholders at the meeting were persuaded, helped by the returns they had earned from the share’s strong performance.

But perhaps the most puzzling aspect of the Viceroy research report was the response from the local market.

It went into a tailspin that knocked 25% off the share price before screeching to a halt and then going into reverse, ending Tuesday just a few percentage points weaker. On Wednesday, the share price tumbled 12.59% to close at R800.60.

Then there’s the bizarre charge that Viceroy was motivated by profit, that it published the report with the dastardly intention of making money, in this instance from selling short.

Capitec executives repeated this “charge” as if it somehow justified trashing the report. That executives who have become enormously wealthy by providing expensive unsecured loans to vulnerable individuals thought this an appropriate charge was truly bizarre.

Viceroy’s latest effort may be clumsy, but it won’t be the last time our market gets hit by this sort of tactic, which seems common in larger sophisticated global markets.

The messy numbers due out from Anglo Gold Ashanti should not distract investors from their operational performance for 2017.

The noise in the annual numbers comes from the restructuring process and sale of assets to Harmony Gold for $300m cash.

The restructuring and sale could be seen as an extension of a strategy around the company’s SA assets that was first put in the market place in 2014.

Anglo Gold had proposed then to split the domestic assets from its international portfolio, creating two companies. The debt levels were too high in the company and major shareholders shot the idea down.

The restructuring of mines like Moab Khotsong and Kopanang, for which Anglo Gold budgeted $86m, resulted in two buyers putting their hands up for the mines. Harmony is buying Moab, a deep-level mine, the nearby mothballed Great Noligwa mine and tailings dumps, while China’s Heaven-Sent SA Sunshine Investment is buying the Kopanang mine.

The sales halve output from SA for Anglo Gold, once the colossus of South African gold mining. SA will account for just 14% of the group’s annual output, coming from the ultra-deep Mponeng mine and a tailings retreatment project.

For investors, the messy annual financial numbers are a sign of a gold company maturing, taking a broom to its historical base and ridding itself of expensive and difficult mines, something to be applauded rather than punished.