End of an era as AngloGold exits SA
• Third-largest gold miner sells its last local mining assets to Harmony Gold for about R4.4bn
In what is the end of an era, AngloGold Ashanti, the world’s third-largest gold miner, has sealed a deal to sell its remaining SA asset as it exits the country after 22 years on the JSE.
AngloGold, created from gold mines bought and built by Anglo American, the mining giant founded by the Oppenheimer family more than a century ago, was the dominant gold miner for decades, but gradually became a shadow of itself as it closed and sold old mines in SA, preferring offshore investments.
It is selling its Mponeng mine and Mine Waste Solutions tailings recycling business with other old assets to Harmony Gold for $300m (about R4.4bn), less than half of what the assets are worth on AngloGold’s books.
These are its last mining assets in SA. In 2014, investors forced AngloGold to drop plans to split the company into its international and national portfolio of mines. After 2014, AngloGold shut mines and sold others as it reduced its exposure to SA.
AngloGold has run the business successfully out of Johannesburg since Anglo American exited the company in 1998 when it was SA’s dominant gold miner and building its international portfolio. It will retain the expertise built up over two decades in Johannesburg despite not having operations in the city.
AngloGold’s decision comes as SA is once again experiencing rolling blackouts because of state-owned power monopoly Eskom’s inability to adequately or safely supply as much electricity as the country needs.
The sales price reflects the risk from Eskom.
Harmony will pay $200m in cash and $260/oz of gold from Mponeng and other under
ground assets included in the transaction based on production above 250,000oz a year. These payments will be made for six years from the start of 2021, and are capped at $100m.
Harmony will pay a further $20/oz on gold output coming from any extensions of mining below existing infrastructure at the three mines included in the transaction, Mponeng, Savuka and TauTona. Mponeng has 8.5million ounces of gold reserves in a planned extension to the mine that would take its life to 20 years.
“Everyone is focused on the $200m cash and the $100m from Mponeng. Think of those as the bread and butter. The jam comes from the $20/oz on the depth-extension project at Mponeng. It makes this a win-win deal for both companies,” said a market source.
JSE-African Rainbow Minerals, which has billionaire Patrice Motsepe and his family as its main shareholder, owns 13.8% of Harmony, which will use the stake towards its black economic empowerment credentials in buying AngloGold’s mines in a deal that should close by mid-2020.
The purchase of the mines added R11.50 per share to the NOAH Capital Markets target price for Harmony, lifting it to R161.50 per share, said analyst Rene Hochreiter.
“Harmony has shown what it can do when it comes to cutting costs when it acquired Moab. If it can do the same this time, there is substantial upside to the profitability of Mponeng and Harmony itself,” he said in a note.
AngloGold under Canadian CEO Kelvin Dushnisky, who took up the role in September 2018, wasted no time in disposing of assets, selling the Sadiola mine in Mali and now the last SA assets ahead of an expected shift in the primary listing from the Johannesburg bourse.
AngloGold would retain a listing in SA even if it decided there was value to be had in shifting its primary listing, Dushnisky told Business Day at the Investing in African Mining Indaba earlier in February.
AngloGold would keep its office in Johannesburg to service the global business, being in a similar time zone as its African assets in Ghana, the Democratic Republic of Congo and Tanzania. It is also a handy midpoint for the mines in Australia and the Americas, he said.
“SA is and always will be an important listing for us, regardless of whether we have production from the country or not,” said spokesperson Stewart Bailey.
Some analysts valued Mponeng and Mine Waste Solutions at $650m (about R9.6bn) and calculated they were generating free cash flows of $100m a year. AngloGold has a R9.9bn book value on the assets.
Harmony, which bought the Moab Khotsong mine from AngloGold in 2018 for $300m, said the Mponeng purchase would add to its cash flows and boost its gold production by 350,000oz a year.
CEO Peter Steenkamp said the purchase would make Harmony SA’s largest gold producer at more than 1.8-million oz a year.
ANGLOGOLD WILL KEEP ITS OFFICE IN JOHANNESBURG TO SERVICE ITS GLOBAL BUSINESS