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Anglo sale opens door on M&A Posted: Fri, 24 Mar 2006 [miningmx.com] -- THE $500m share issue by AngloGold Ashanti, and the simultaneous placement by Anglo American of up to a further $1.05bn shares in its gold unit, could trigger merger and acquisition activity in South Africa’s gold industry. It also raises the question as to what AngloGold Ashanti and Anglo American might do with the cash. Anglo American announced on March 23 that it was doubling its $1bn share buy-back programme. But it could also use cash from the AngloGold Ashanti share placement to bid for shares in Anglo Platinum it doesn’t already own. Anglo American owns about 76% of Anglo Platinum, the world’s largest platinum producer. AngloGold Ashanti said in an announcement on March 24 that it would issue $500m worth of shares for cash. In addition, Anglo American said it would simultaneously place $850m in AngloGold Ashanti shares with a provision for a further $200m ‘greenshoe’ offering assuming there was sufficient market interest. The combined effect of the parallel announcements is that Anglo American would dilute its AngloGold Ashanti shareholding to between 40% and 42.3%, depending on whether the greenshoe was exercised. Anglo American and AngloGold Ashanti are restricted from further share activity for a period of 270 days and 180 days respectively. However, the lock-in agreements does not prevent AngloGold Ashanti from dealing in, for instance, a scheme of arrangement such that it could offer its shares in exchange for those of another. This option raises the question as to whether AngloGold Ashanti now considers itself unfettered enough by its majority shareholder to embark on a medium-term merger and acquisition strategy. Unconfirmed speculation is that AngloGold Ashanti was considering another tilt at compatriot Gold Fields thereby combining South Africa’s first and second largest gold producers. Were such a combination to occur, it would also create opportunities for Harmony Gold, the third largest gold producer, which has made its interest in further acquisitions plain following its failed bid for Gold Fields last year. Western Areas, another listed gold company, is also considered a takeover target by AngloGold Ashanti and Gold Fields. Harmony Gold has acquired a 29% position in Western Areas as its canny CEO, Bernard Swanepoel, anticipates that bidding for Western Areas may intensify in the coming months. Certainly, the temperature in South Africa’s gold industry has been turned up a notch. “AngloGold Ashanti is certainly not precluded from merger and acquisition activity,” said an analyst. “Logically it would make sense for it to combine with Gold Fields.” AngloGold Ashanti has been linked in potential corporate deals with US gold producers, Barrick Gold and Newmont Mining, but their aversion to the South African investment climate might prevent this. “You’d have to think, however, that in merging with Gold Fields, AngloGold Ashanti would be too exposed to Ghana,” said Stephen Roelofse, a fund manager for Sanlam Investment Managers. Roelofse also said Anglo American and AngloGold Ashanti might struggle to find buyers for its shares after Norilsk Nickel placed just over 20% of Gold Fields earlier this month. There’s also the question of what AngloGold and Anglo American would do with the cash from a successful share placement. “One idea is that AngloGold Ashanti would divert some of the $500m into reducing its hedge book,” said Roelofse. “It would really depend on where the company thinks the gold price is going.” Another analyst said that the extra cash would give AngloGold Ashanti more confidence on its capital development programme as its balance sheet had been looking stretched.Free news alerts: click here to subscribe
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