Kevin Crowley
ANGLOGOLD Ashanti had “three or four sources” of cash to reduce its $3 billion (R35bn) debt burden, it said. According to Barclays, the gold mining firm has only one realistic option – selling assets.
The world’s third-largest gold producer plans to cut its net debt, the most relative to market value among 14 global peers, according to data, by $1bn, or a third, over the “medium term”, according to chief executive Srinivasan Venkatakrishnan.
The company could do this using earnings from operations, joint ventures, asset sales and refinancing debt at lower rates, he said last month.
At Tuesday’s gold price of about $1 200 an ounce, which is little changed over the past 14 months and down 36 percent from a peak of $1 921.17 in 2011, AngloGold’s cash flow will not make a big enough dent in its borrowings, according to Harry Mateer, a New York-based bond analyst at Barclays.
That made a major mine sale a more likely option because the company would probably refrain from raising equity, he said.
“It’s going to have to come from external sources, which primarily means assets sales,” Mateer said on Monday. “An equity raise is pretty low on the priority list at this point, so it’s more likely they’re going to focus on asset sales.”
Full value
Any potential asset sale “is an opportunity, not an obligation”, Stewart Bailey, a spokesman for AngloGold, said. “If we can’t get full value, we won’t sell.”
He added that the company’s plan to cut debt in the medium term meant one to three years.
The premium investors demand to hold AngloGold’s US currency bonds due in July 2020 over dollar debt of emerging market metals and mining companies tracked by JPMorgan Chase which rose to 136 basis points on February 26, the highest on record, and was at 118 on Monday.
AngloGold’s current debt was manageable, with no bond maturities before 2020, Venkatakrishnan said last month.
Standard & Poor’s cut AngloGold’s rating to junk in 2013, while Moody’s Investors Service rates AngloGold’s debt Baa3, its lowest investment grade, with a negative outlook.
“It’s difficult to attach an exact probability to downgrade risk given the multitude of factors which we see as exerting downward pressure” on the rating, Douglas Rowlings, a Dubai-based analyst with Moody’s, said.
These included the challenges around successfully restructuring the loss-making Obuasi mine in Ghana, and the negative production and cost implications of upcoming wage talks in South Africa.
The firm was seeking to sell or find a partner for “one of the key production assets”, Venkatakrishnan said.
Its shares fell 2.97 percent to close at R125 yesterday. – Bloomberg