[miningmx.com] – ASSET write-downs for the world’s gold miners are approaching the $20bn level following AngloGold Ashanti’s $2.2bn to $2.6bn charge that it announced earlier this week.
And there will be more to come including the now unprofitable resources in the ground owned by other gold producers throughout the South African sector.
More worrying, though, is the impact of the gold price decline at the actual cash level, and the effect if will have on balance sheets and general liquidity of the industry.
According to a recent report from CIBC Capital Markets, there will be asset sell-offs and closures, CFO will be scurrying back to lenders, and former lending agreements will evaporate like morning dew.
The highly indebted, in particular, will have to raise yet more debt such as Barrick Gold and AngloGold Ashanti, a likelihood troubling for the South African headquartered company as its credit rating was cut by Stanard & Poor’s on July 17.
“These high levels of debt may also yet become problematic for existing debt covenants, pushing some companies towards equity financing,” said Leon Esterhuizen in a report for CIBC Capital Markets.
“In particular, we’d be very surprised if some of the available liquidity as in undrawn facilities will still be available given a significant deterioration in the capacity to generate strong free cash flows,” he said.
“With almost 60% of the world’s gold miners below break-even (and requiring a gold price of $1,500/oz to get there) the problem is a global one, not just AngloGold Ashanti’s,” said David Davis, an analyst for Standard Bank Group Securities.
He believed AngloGold Ashanti’s undrawn liquidity headroom of $3.4bn, as of the end of the first quarter, was not too much to be worried about, but there are questions as to whether the group’s discussions with lenders this week is more than just refinancing its $750m bridging loan facility.
Srinivasan Venkatakrishnan (Venkat), CEO of AngloGold Ashanti, said at the group’s first quarter presentation in May there was no need yet to refinance the 2014 convertible by issuing equity or equity-linked notes, but clearly the gold price will change the perspectives of bankers.
Venkat will be pointing towards 2014, the year in which capital expenditure, as per estimates in May, falls to about $200m from just over $600m this year, and new gold output increases by about 600,000 ounces. That time can’t come quickly enough for AngloGold Ashanti. It’s like waiting for the cavalry.
In the meantime, there’s talk that one of the victims of the cash crunch will be, unfortunately, investors. That’s because gold companies may start to consider sacrificing dividend payments, including AngloGold, especially as companies convert to reporting on the basis of All-In Sustaining Costs.
A major feature of former AngloGold CEO Mark Cutifani’s final year at the company, was his interest in building a track-record for yield, finally giving investors return after failing to do so well enough during the gold bull run. That may come to a speedy end having already cut the dividend in half to 50 cents/share in the third quarter (November 2012).
“Given the . forthcoming balance sheet strain, we believe that dividend payments are at risk across the industry,’ said Esterhuizen.
