Dineo Faku
ANGLOGOLD Ashanti, the third-biggest gold producer, should have consulted with its big shareholders before announcing a plan to raise $2.1 billion (R23bn) to beef up its balance sheet and unbundle its international assets.
This is according to Peter Major, a mining analyst from Cadiz Asset Management, after AngloGold surprised the market yesterday by scrapping the proposed restructuring plan it had announced last Wednesday.
“Did AngloGold run this by its big shareholders? You don’t want to shock shareholders. Who dropped the ball?” Major asked.
AngloGold shares rose 7 percent in intraday trade on the news. The shares closed at R149, a 2.05 percent rise on the day.
Major believed by scrapping the plan AngloGold would miss an opportunity to get out of debt and would become the “Eskom of the gold sector”. Power utility Eskom has R200bn debt and its government guarantee was extended on Sunday to allow it to raise a further R50bn debt.
Major added that the firm’s chief executive, Srinivasan Venkatakrishnan), should have fought harder. “If I was Venkat I would resign. He has done a good job by motivating staff and cutting costs,” said Major.
AngloGold’s about-turn on its plan for a widescale restructuring of its international assets into a new UK-based holding company comes after the stock became toxic following the announcement five days ago, sending its share price 12 percent lower as investors gave the associated capital raising a thumbs down.
Bloomberg reported at the weekend that John Paulson, a hedge fund manager whose New Yoek-based fund owned a sizeable stake, opposed the rights issue because it would destroy share value.
“Paulson will not vote its shares in favour of AngloGold Ashanti’s proposal to conduct a highly dilutive $2.1bn rights issue to support a partial spin-off of its international assets,” his hedge fund Paulson & Co, which owns about 6.6 percent of AngloGold Ashanti, said.
“While the separation of the company into an international business and a South African business makes strategic sense, the small amount of the spin-out, the likely holding company discount, and the highly dilutive equity offering would, on a net basis, destroy shareholder value.”
The company’s decision to drop its plan, after consulting two-thirds of its shareholding base at the weekend, raises questions about how it can cut its debt level and how quickly.
Investec analysts suggested in a note that it sell its share in the Kibali mine in the Democratic Republic of Congo to joint venture partner and rival Randgold Resources.
AngloGold’s net debt to earnings before interest, tax, depreciation and amortisation (Ebitda), a ratio used as a measure of leverage, is at 1.73. Its rival, Gold Fields, had a net debt:Ebitda of 0.7 when it implemented a demerger in 2013 that gave life to Sibanye Gold.
“When you consider the amount of debt in AngloGold, having a rights issues makes sense to me. I think the main problem I had was that they did not give any details on the rights issue. Markets do not like uncertainty,” said Michael Schroder, a fund manager at Old Mutual, which has a 1.7 percent stake in AngloGold.
Schroder said the fact that AngloGold intended to initially retain a 65 percent stake in the firm it planned to spin off and list in London was also key.
“People [who are] potentially interested in buying shares in the new company would have seen that the big parent might have wanted to offload the stock at some point, so there could have been an overhang of shares for years to come,” he said.
The firm said last Wednesday that the Reserve Bank had approved the proposed demerger plan on condition that AngloGold would be debt free.
AngloGold said that the capital raising and restructuring would be subject to shareholder approval.
“There has been broad support for the strategic logic of the restructuring, but a number of shareholders have expressed concerns about certain aspects of the proposed transactions, in particular the quantum of the equity capital raising needed to enable the restructuring to be implemented in accordance with regulatory and other requirements,” AngloGold said yesterday.
“AngloGold Ashanti has, therefore, decided not to proceed with the restructuring and capital raising, as currently proposed.” –
Additional reporting by Reuters