Mark Cutifani, AngloGold Ashanti, CEO
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» SA gold shares are cheap as chips - Leon Esterhuizen, RBC Capital Markets
» We're going to use more power as mines get deeper - Mark Cutifani, CEO, AngloGold
» Gold hedge cuts to slow in second half
» AngloGold tackles its two most problematic mines
» AngloGold adds a mine to its portfolio
» AngloGold slashes its hedgebook by 39%

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AngloGold's $1bn bond complication
Allan Seccombe
Posted: Thu, 30 Oct 2008

[miningmx.com] -- ANGLOGOLD ASHANTI, which posted a quarterly adjusted headline loss of $119m related to cutting its hedge book, is unable to refinance a $1bn convertible bond the way it planned and is now investigating asset sales, debt and reviewing capex.

AngloGold, one of the world’s largest gold producers, had planned to refinance the $1bn bond due in February 2009 via a new equity-linked instrument, but that is off the cards now.

“Global capital market conditions have been, and continue to be, disrupted and volatile and in recent weeks the volatility and lack of liquidity in global capital markets have reached unprecedented levels,” the company said in a statement accompanying its September quarter results which showed gold output rising one percent to 1.265 million oz.

“In light of these recent market conditions, the company is actively exploring a broader range of refinancing options, including bridge financing, further debt financing and additional asset sales, as well as reviewing discretionary capital expenditures.”

Included in the asset sales are the Tau Lekoa mine, which produced 38,000 oz in the September quarter at a cost of $568/oz, and uranium-bearing tailings dumps in South Africa, for which banks have been mandated and talks are underway.

AngloGold CEO Mark Cutifani said the talks could be concluded as soon as early next year.

"Tau Lekoa is one of our smaller assets and we'd rather focus on our Vall and West Wits assets. Our experience is that these smaller assets sometimes do better with people who can focus on their exact needs," Cutifani told Miningmx, adding AngloGold was not prepared to spend any more capital on the mine.

Talks with Randgold Resources to buy out AngloGold at the Morila gold mine in Mali, which stalled over the price earlier this year, could be resumed in earnest. There are talks with Iamgold over the Sadiola project.

UPDA AngloGold’s net debt fell sharply to $1.23bn from $2.7bn in the June quarter.

AngloGold had, by the end of the quarter, cash holdings of $555m and $294m of available “borrowing headroom”. With part of these borrowings based in Australia, where the currency has weakened against the American dollar, this headroom could be $140m larger.

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In addition to the A$150m AngloGold has budgeted for the Boddington project in Australia, it has capital expenditure of between $200m and $225m, but it is reviewing this spending.

“In the context of weakening operating currencies across much of our asset base, combined with our continuing hedge reductions, we are well positioned for margin expansion going into 2009,” CEO Mark Cutifani said in the statement.

AngloGold delivered or settled 263,000 oz of its hedge book, the largest of any gold producer, bringing its total commitment to 6.3 million oz by the end of September from 6.88 million oz at the end of June.

It has a target of reducing its forward positions to six million oz by the end of the year, and it has cut nearly five million oz from its hedge book since the start of the year.

“The accelerated delivery will provide an improving exposure to spot prices in the fourth quarter, with the company on track to complete its substantial hedge restructuring by year-end,” it said.

The received gold price during the September was 10% lower than the June quarter at $644/oz and 26% below the spot price.

“As a result of the lower received price, higher operating costs and the accelerated hedge delivery of 263,000oz, an adjusted headline loss of $119m was recorded. Excluding the hedge buy backs, the adjusted headline was breakeven, primarily due to the write down on the Geita stockpile and higher cash costs,” AngloGold said.

Looking ahead, AngloGold said it anticipated gold output of 1.25 million ounces if power in South Africa remains stable. The total cash costs should fall to $460/oz from $486 in the September period.

“Earnings for the fourth quarter are expected to be significantly distorted by, amongst other things, annual accounting adjustments such as rehabilitation, inventory, current and deferred tax provisions.”