Sharon Brumley works on pouring fusion samples into cone molds to deturmine the total gold content in a sample at the Cripple Creek & Victor Gold mine (in a joint venture with AngloGold Ashanti - or something like that... http://www.anglogoldashantina.com ) in Victor (and Cripple Creek), Colorado, U.S. Photographer: Matthew Staver/Bloomberg

Bloomberg and Reuters

ANGLOGOLD Ashanti, the world’s third-largest gold producer, climbed its most in seven months after selling its Cripple Creek & Victor mine to Newmont Mining. This ended speculation it would have to issue shares.

AngloGold rallied as much as 15 percent yesterday to R122.76 before closing 11.36 percent higher at R118.46.

Reduce debt

The sale of the Colorado mine for $820 million (R10.3 billion), plus 2.5 percent of future gold production, would reduce AngloGold’s net debt to its target level of 1.5 times earnings, chief executive Srinivasan Venkatakrishnan said yesterday.

The sale would help AngloGold get most of the way to its goal of reducing debt by $1bn.

Weaker oil prices, and a softer rand – which reduces local costs relative to the US dollars the company gets for its gold – have helped AngloGold cut costs. Newmont will issue 29 million shares to help pay for the mine, which is undergoing expansion.

“We have achieved this without any dilution to shareholders, and importantly, it eliminates the potential equity overhang on the stock,” Venkatakrishnan said. “We have no plans to issue any equity.”

AngloGold’s aim to cut its $3.1bn net debt – which was almost twice adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) at March 31 – had raised concerns among shareholders that it might be forced to sell shares.

Opportunity

Newmont chief executive Gary Goldberg said it represented “a value-accretive opportunity for Newmont to improve mine life and costs in a favourable jurisdiction”.

Investors last year rejected a plan to raise equity to lower debt and split the company’s South African and foreign assets. “We expect the asset disposal to be a positive catalyst for the stock, reducing investor concerns of a potential capital raise,” said Andrew Byrne, an analyst at Barclays London.

Proceeds from the sale represented about a quarter of AngloGold’s market value, while the asset produced less than 5 percent of the company’s gold, Venkatakrishnan said.

It also saves $200m on capital spending in the next two years.

The money would be ring-fenced for debt reduction, said finance director Christine Ramon.

While the company is leaving its options open, it will consider repaying $1.25bn in bonds with an 8.5 percent coupon due July 2020. The bonds have a call option in July next year.

Discussions over selling AngloGold’s Sadiola asset in Mali to Iamgold were ongoing, Venkatakrishnan said.

Like rival gold miners, AngloGold is cutting costs and lowering debt built up in the decade-long bull run in the precious metal to 2011. The company last year attempted to split its international and South African operations but was thwarted after investors rejected a plan to reduce its debt through a share sale.

Talks on Iamgold’s possible purchase of AngloGold Ashanti’s stakes in two gold mines in Mali were moving along well, but there was no urgency to do a deal, Venkatakrishnan said.

Canadian-based Iamgold and AngloGold each own 41 percent of the Sadiola mine in south-western Mali and 40 percent of the nearby Yatela mine. – Bloomberg and Reuters