Johannesburg - AngloGold Ashanti is open to repaying $1.25 billion (R12.8bn) of bonds early as yields drop to a record low, according to its chief executive.
The gold producer has the option to call the 8.5 percent July 2020 security, which it sold last year, starting in July 2016 at pre-arranged redemption rates. The yield slid to a record low 6.37 percent on Friday after 20 consecutive days of declines, with the price at 109.59, according to Bloomberg data.
The “coupon was offered to provide the company flexibility in terms of early repayment options”, AngloGold chief executive Srinivasan Venkatakrishnan said in a phone interview last month. “It’s a price that we paid to have that optionality intact rather than locking in seven-year money.”
AngloGold, with 23 mining operations in 11 countries, sold the bond less than a month after bullion prices tumbled 14 percent over a two-week period, part of the first annual decline in 13 years.
While the drop forced producers from the US to Australia to revalue their assets, AngloGold has been rewarded by bondholders for cutting costs, including jobs and the dividend, to stay profitable.
The yield on the security is now 40 basis points lower than the average for dollar bonds of emerging-market metals and mining companies in JPMorgan Chase indices.
On August 7 last year, AngloGold investors demanded a premium of 203 basis points, or 2.03 percentage points.
AngloGold would have to pay 106.375 percent of the principal on the bonds, plus unpaid interest, if it were to redeem the bonds after starting from the threshold date in 2016, according to its prospectus. Should it choose do this before that date, the redemption price would be 108.50 plus accrued and unpaid interest to the redemption date as well as another premium, it said.
AngloGold had not yet made a decision on whether it would redeem the bond, Venkatakrishnan said. “It’s not something we need to worry about right now and we can look at it at that stage,” he said.
AngloGold spokesman Stewart Bailey declined to add to Venkatakrishnan’s comments when contacted by phone on Friday.
“You would expect the company to do that given the current environment,” Edward Meigs of First Eagle Investment Management in Baltimore said on Thursday, referring to the option to call in July 2016.
“It’s hard to say what’s going to be going on with the market and the company at that point in time but clearly that is the current expectation.”
Meigs said he had bought the bonds when they were first sold.
The company posted its first annual increase in output in nine years in 2013 as new mines in Australia and the Democratic Republic of Congo moved towards maximum production.
AngloGold has not paid a dividend since May last year, and has lowered costs by also cutting exploration and capital spending.
Gold producers have been forced to trim expenses and reduce payouts to shareholders after the bullion price dropped 28 percent last year, the biggest annual decline since 1981.
It was at $1 349.50 an ounce at the afternoon fix in London yesterday, up $23 from Friday’s second fix and taking the increase this year to 12 percent. - Bloomberg