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Testing times for AngloGold's new team
David McKay
Posted: Fri, 14 Jul 2006

[miningmx.com] -- PREDICTIONS are treacherous but the probability is that Bobby Godsell (53) is not leaving AngloGold Ashanti soon. The question is worth considering owing to wholesale changes elsewhere in the company’s management.

Within a year and a half, the mainstay of AngloGold Ashanti’s executive team has retired: operations director, Dave Hodgson; financial director, Jonathan Best; and marketing director, Kelvin Williams.

These names represent nearly all the personalities who had helped ease AngloGold Ashanti, South Africa’s largest gold producer, into the world’s mining industry in the early years of the country’s new-found democracy. Most of them are gone now, bar Godsell.

“I’ve never had a boring day in my life at this company,” says Godsell, who’s been CEO of AngloGold Ashanti since its formation in 1998. “Right now, the challenge is how you manage the exit of a major shareholder. It’s a big challenge and it can’t be done half-heartedly.”

In March 2006, Anglo American provided market guidance that it intended to begin reducing its exposure to the gold market, which it held through a 51% stake in AngloGold Ashanti. By April, it had sold a fifth of this holding for about $973m.

Since then, Anglo American has said it wants to divest itself of the remainder of AngloGold Ashanti shares over the next two to three years, though Godsell says it’s not obvious whether it will be a big bang distribution to the market.

Nonetheless, the prospect has created the perception of a long-standing, major overhang in AngloGold Ashanti. “Lingering uncertainty,” says Steve Shepherd, a JP Morgan gold analyst, “... could drag on the share price relative to some of its more geared South African peers.”

This turn of events occupies Godsell’s mind more than the possibility of retirement. “When I get tired, I’ll bugger off. And I’ll go quickly,” he says, bringing an end to the discussion. In the meantime, Godsell presides over an almost completely reinvented executive team at a time when the company is in profound flux, or as Godsell has termed it recently, “transformation”.
When I get tired, I’ll bugger off. And I’ll go quickly
From the veterans of 2004, AngloGold Ashanti’s executive team is now a group of people averaging in their mid-forties. Were it a car, the Volvo has been traded in for an SUV. And almost immediately, there’s a lot of ground to cover.

This year is an annus horribilis for AngloGold. Production will be down, reserves have already been restated lower, and costs will go higher. Obuasi, the company’s large Ghanaian mine, continues to be difficult to tame, and Anglo American is preparing to sell nearly $5bn worth of the company.

In the context of a new spate of mega-merger activity, deal speculation swirls about the company; only this time, there’s talk AngloGold will be the target.

In the industry at large, events have stepped up a notch. Western Areas has been liberated from the headlock imposed by the late Brett Kebble. Having dusted itself off from a bruising takeover attempt of Gold Fields, Harmony Gold has had its deal lust stoked again. And investors have flooded into gold, partially helped by the runaway success of the exchange-traded fund, Streettracks. Has the gold industry ever worked on so many planes at the same time?

In this context, Godsell says his new executive team is better, more schooled in the wiles of the global gold industry than his long-time colleagues.

“There’s been a generational change from people in their mid-fifties to individuals in their mid-forties. But the new generation is much more schooled in the global gold market,” Godsell says.

But fears about the team persist. Given the volatility of the industry at the moment, and the relative inexperience of the executive team, there’s the temptation Godsell will be less interested in deferring to his charges. So when, behind closed doors, the debate becomes intense, and Godsell is challenged, will he pull rank?

“It’s an occupational hazard for CEOs to dominate their boards. If I adopt a Napoleonic role, I hope it will be smacked down. I doubt any of the new board members are toadies of the CEO,” he says.

That remains to be seen, but in the interim there are other management changes afoot for AngloGold Ashanti. The exit of Anglo American as a major shareholder means there’ll be changes to the company’s non-executive board. “A thorough renewal of the board will happen,” says Godsell.

How Anglo American quits its gold investment is unclear. Countering the uncertainty with existing and new shareholders involved 52 meetings over the best part of a month, with some serendipitous results.

There was more appetite for gold shares among non-traditional owners. The retail sector and new emerging market investors also stepped up to the plate. And petro-dollar-rich Middle Eastern investors remain a relatively untapped market for the share.

These findings were reflected in the mere 1% discount applied to AngloGold’s $500m shares-for-cash issue, bravely launched in conjunction with Anglo American’s placement and only weeks after Norilsk Nickel announced plans of its own to sell Gold Fields shares.

The business case Godsell sold turned on more greenfield opportunities than ever before, deepening projects at established mines, an additional 500 000 oz/year in new production, and a near $20/oz cost reduction in 2007. Speaking at the Merrill Lynch investment conference in May, he spoke both of the company’s historical ability to evolve and its prospects in 2007.

But analysts aren’t wholly convinced. They think the company’s balance sheet continues to look overworked and that there’s little in growth strategy to separate it from its rivals.

“We have serious reservations about the company’s ability to meaningfully change its strategy,” said Georges Lequime, an analyst for RBC Capital Markets in a note dated 8 May. “Although the company retains some of the highest regarded technical experts in the gold mining industry, significant senior changes in recent months concern us,” he said.

AngloGold’s best selling point must be its fortitude in difficult mining environments, particularly the emerging market. More than ever before, that’s where the world’s new gold resources are likely to be found, says Godsell. Moreover, there’s less difference now between the risk inherent in Latin America and Africa, a continent where AngloGold Ashanti sourced 78% of its gold production in 2006.

“Outside of Africa, Latin America is where we’ve had the best track-record,” says Godsell. But there’s a curious turnaround in risk perception. In a manner eerily resonant of pre-democratic South Africa, populist politics in Latin America punts the interests of ‘non-settlers’ over ‘settlers’, says Godsell. “The threat of nationalisation is much larger in Latin America now. At least two governments are promoting it,” he says.

The Democratic Republic of Congo (DRC) meanwhile, where AngloGold Ashanti has its most mature greenfields project, Mongbwalu, continues to develop momentum. “There’s been a six-year period of growing stability,” says Godsell of the DRC. “The vast majority want democracy and peace. There’s huge momentum for the stability process.”

AngloGold has faced its fair share of outrageous fortune in Africa. It has had its gold embargoed by the government of Guinea, the location of Siguiri, a mine that may contain greater riches than perhaps thought. Its employees have been forced to pay protection money in the DRC. And tax disputes have tripped it up in Mali and possibly, now, in Tanzania.

AngloGold’s major African bet, the $1,5bn bid for Ashanti Goldfields, has not yet delivered on initial promises. Alberto Arias, a gold analyst for Goldman Sachs, makes the point in a note dated 13 February.

“The company stated that its acquisition of Ashanti in 2Q04 would accrue a higher gold production, after the increasing capital expenditures to capital-starved mines, a process that would take four to six quarters. Nonetheless, production in these operations peaked at 252 000 oz.”

Godsell says the extended bidding process for Ashanti, brought on with Randgold Resources surprise $1,7bn cash and paper rival bid, and complications tackling Ghanaian perceptions of the sale, has been a factor in the relative under-performance of Ashanti’s Obuasi in particular.

“The transaction took 15 months instead of three. The extra year is what cost us so dearly,” says Godsell. However, there are extended analogies with the restructuring of AngloGold Ashanti’s Freegold mine in South Africa’s Free State province with multi-shafts and plants and large distances between assets.

Commenting on Obuasi in particular, and the company in general, Godsell says: “I’m convinced the mine is moving in the right direction.” And the Obuasi Deeps project, dubbed a major blue-sky element of the Ashanti Goldfields deal, remains on the radar screen, albeit in a phased deepening of the mine. So do other deepening projects.

This is the prospect of accessing gold in South Africa below about 3.5km. Details are sketchy, but Godsell hints at more news on the group’s plans, assuming the rand gold price can be sustained. “There’s an interim deepening programme and we’re looking at the scoping studies. We’ll be more meaningful on this by the end of the year,” he says.

“We absolutely have to re-examine deepening below 4km. We’re dusting off plans and hope to say more at the year-end.”

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Some of AngloGold Ashanti’s new faces:

Appointed to the board of AngloGold Ashanti in May, 2005, Neville Nicholau (46) is responsible for the company’s South African operations, a role previously played by Dave Hodgson. Hodgson has taken a non-executive role at Moto Goldmines, a junior mining company operating in the DRC.

Srinivasan Venkatakrishnan (Venkat, 40) replaces Jonathan Best as chief financial officer. Venkat was the only member other than Sam Jonah to retain seniority after AngloGold merged with Ashanti Goldfields in 2004. Best has become MD of AIM-listed Trans-Siberian Gold, a company seeking gold in the Russian Federation and in which AngloGold Ashanti has a 30% stake.

The responsibilities of Kelvin Williams have been divided between Mark Lynam (44) and Thero Setiloane (46), a former director of Real Africa Holdings. Setiloane is responsible for AngloGold Ashanti’s marketing, while Lynam is responsible for the group’s treasury activities, including hedging.

Richard Duffy (42) is new business director and was appointed to the executive committee in 2005.