AngloGold on debt watch
AngloGold Ashanti's decision to scrap a $US2.1 billion ($2.3 billion) share sale after shareholders opposed it will put the debt burden of South Africa's biggest gold miner under scrutiny.
AngloGold chief executive Srinivasan Venkatakrishnan proposed the equity offering alongside a plan to place international operations into a separate company. That would have left the South African operations debt-free. Now, AngloGold needs to find another way to grapple with its debt as gold prices trade near eight-month lows.
"The problem is not going to go away," Peter Major, a mining analyst at Cadiz Specialised Asset Management in Cape Town, said.
"The only way you get off it is with a rights issue."
Investors, including hedge-fund billionaire John Paulson, opposed the issue because it diluted existing shareholders too much. Having rejected that plan, the company will focus on getting cash from existing operations while considering asset sales, Mr Venkatakrishnan said yesterday.
"The fundamentals of the business are still strong if you see what we did in terms of production and costs," he said.
"You can expect to see cash flow generated from these to help deleverage the company."
With net borrowings of $US3.2 billion, AngloGold has a net debt-to-equity ratio of 103 per cent, more than other big gold miners, according to Bloomberg.
However, some investors said the rights offer was not necessary. "The company realised that the market and us shareholders wouldn't have supported the rights issue," said Charl Malan, a mining analyst at Van Eck Associates, which holds 5.2 per cent of AngloGold shares. "Mr Venkatakrishnan and the rest are the best mining managers you will find. They are doing a good job of bringing costs under control."
AngloGold shares, which slumped a record 15 per cent last week when the share sale was announced, rose 2.1 per cent in Johannesburg yesterday.
Mr Paulson, a 6.6 per cent shareholder, objected to the size of the share sale and planned to vote against the proposal.
"The concept is good but the execution, the way they are doing it with this massive dilutive equity offering, its value-destructive," he said last week.
The South African Reserve Bank only consented to the proposal to split the company after AngloGold agreed to raise enough to become debt-free.
Bloomberg
