AngloGold Unwanted U-Turn Has Market Awaiting Asset Sales

By Kevin Crowley

AngloGold Ashanti Ltd. (ANG) is being pushed to consider asset sales to cut $3.2 billion of debt as investors sell the South African company’s bonds and stock following a botched share sale and spinoff.
The world’s third-biggest gold miner, whose net debt to equity ratio is the highest of any major rival, could raise $1.1 billion selling aging mines in Mali and Ghana as well as exploration projects in Colombia, according to Barclays Plc. The yield on AngloGold’s August 2022 dollar bond climbed 27 basis points since Sept. 11 as investors including hedge-fund billionaire John Paulson rebelled against the producer’s plan to raise $2.1 billion in a rights issue, or a third of the company’s then market value.
“They will look to dispose of assets,” Jon Brager, a credit analyst at Hermes Fund Managers Ltd. in London, which manages $45 billion in
assets including AngloGold bonds, said by phone yesterday. “Everyone agrees that the business needs to reduce debt in order to execute its long-term strategy.”
After investors rejected the Johannesburg-based company’s plan, AngloGold said Sept. 15 it’s considering “portfolio simplification” to reduce borrowings. The shares have tumbled 34 percent since this year’s peak in March aid a 12 percent drop in the gold price. AngloGold fell 2.3 percent to 139.02 rand by the close in Johannesburg yesterday. Bullion rose 0.2 percent to $1,223.83 an ounce at 10:34 a.m.

Debt-Equity

AngloGold has a net debt-to-equity ratio of 103 percent, the largest among the world’s 14 biggest gold miners by production, according to data compiled by Bloomberg.
A more acceptable level of debt would be about $1.5 billion, Brager said. That would be below the company’s $1.68 billion of earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg.
To invest in its lower-cost mines and to develop projects, AngloGold “needs to have access to the capital markets,” he said. “It needs to be investment grade and currently it’s in the crossover space.”
AngloGold is rated Baa3 by Moody’s Investors Service, the lowest investment grade, and BB+ by Standard & Poor’s, the highest junk rating.
The company could sell non-core assets such as Serra Grande in Brazil, Iduapriem in Ghana and several aging mines in Mali, according to Andrew Byrne, an equity analyst at London-based Barclays. Such disposals could raise $375 million to $620 million, he said. Gross debt was 2.2 times Ebitda at June 30. Gross debt of 3.25 times would be a “trigger point” for the rating, Douglas Rowlings, a credit analyst at Moody’s, said by phone yesterday.

Colombia Sale

AngloGold would reach net debt of 3.2 times Ebitda next year if the gold price dropped 6 percent to $1,150 an ounce, Harry Mateer, a New York-based Barclays credit analyst wrote in a Sept. 17 note. Net debt is gross debt minus cash balances.
AngloGold’s Colombian assets could be sold for $815 million, based on a sale in August, that of Gold Fields Ltd.’s 50 percent stake in Chucapaca in neighboring Peru for $81 million, Byrne wrote in a Sept. 16 note.
“We are looking at asset sales,” AngloGold spokesman Stewart Bailey said by phone yesterday. “Our targets are realizing value from the Colombian portfolio and a partner for Obuasi.” Obuasi is a mine in Ghana.
Selling assets in the current environment, with gold 27 percent lower since the beginning of 2013, is tough, Hermes’ Brager said.
“The companies with stronger balance sheets will use this as an opportunity to buy assets at a good level,” he said.
Moody’s said it expects AngloGold to maintain healthy debt and liquidity ratios.
“With the headwinds to the gold price, there’s an expectation that we’ll continue to see AngloGold taking the necessary steps,” Rowlings said.