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AngloGold attracts vote of confidence Posted: Tue, 09 Oct 2007 [miningmx.com] -- THE SALE OF 67.1 million shares in AngloGold Ashanti in less than two days is a huge vote of confidence in the gold counter’s future, not to mention the gold market in general, which has been peppered with gold company shares of late. At $2.9bn, the sale of AngloGold shares more than doubles the $1.2bn in Gold Fields’ shares issued in January, principally to pay for buying South Deep. That had been South Africa’s largest share issue ever, although it’s worth noting AngloGold’s shares carry a higher discount (8.6%) compared to the 2.5% discount at which Gold Fields’ shares were sold. Nonetheless, the timing of the sale by Anglo looks impeccable: gold reached a 28-year high in US dollar terms on the Friday prior to the announcement while, in rand terms, the gold price reached an all-time high. As a piece of business it provides more evidence that Cynthia Carroll, Anglo American CEO since March, has the bit between her teeth. Last month, Anglo finalised a much overdue R10bn empowerment deal for Anglo Platinum. Clearly, gold industry investors buy the argument AngloGold has better days ahead after underperforming the market all year. Production is slated to improve to 6.2 million oz in its 2008 financial year from 5.6 million oz in 2007. There are also signs of better times at its troublesome mines, such as Geita in Tanzania, where the grade is improving. As part of the sale, Anglo will investment account its remaining 17% stake in AngloGold Ashanti – and has additionally pledged not to sell those shares until 31 May 2008. It also has board representatives, Carroll and René Medori, Anglo’s chief financial officer, resign from AngloGold’s board. That effectively gives both AngloGold and Cutifani their own wings. AngloGold may argue it was always independent, but it’s worth knowing that Anglo had a veto position. Market wags say it’s possible Anglo pressed for dividends when AngloGold Ashanti would have preferred funds for capital development. Finally, the prospect of the overhang must have been a major distraction for management, which can now turn its hand to more operational matters and mapping out a strategy for itself. But with great expectations come current worries, especially for Cutifani. There’s the pressure of getting the operations at Obuasi right, the mine in Ghana and improving its health and safety record following the recent deaths and injuries at Mponeng. It’s also worth noting that some investors didn’t subscribe to Anglo’s sale of AngloGold shares owing to uncertainty over the company’s direction vis-ŕ-vis its hedge book. As of its June quarter results announcement, AngloGold has some net forward sales of 8.75 million oz until 2016, of which 5.3 million oz is to be sold between 2008 and 2010. Will Cutifani and his board choose the “big bang” approach of another hedged gold producer, Newcrest? It announced in September it would raise $2bn through an equity issue, part of which would be to close out its hedge book, effectively taking the hit up front in favour of future revenue. (AngloGold is hardly alone in that matter. Barrick, the largest gold producer, has 10 million oz of production hedged at an average of $329/oz, about half less than gold’s spot price). Cutifani knows a thing or two about hedge books, having taken over at Australia’s Sons of Gwalia, a gold company that was almost strangled to death by its forward gold sales. Speaking at a recent introductory breakfast to the media, Cutifani said that such things had their place. It remains to be seen if AngloGold has such a place for hedging in the future. “The actual sale – together with the new CEO arriving and sweeping a new broom through the company – has been viewed positively,” said David Davis, a gold analyst at Credit Suisse Standard Equities. “You hope they’ll deal with the hedge book, but the stated policy so far is to sell into the hedge book.” Click Here to subscribe to our daily newsletter
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