[miningmx.com] – THE fur is flying in the global gold sector with several of the world’s top gold producers facing legal claims from shareholders for having allegedly abused fiduciary duties by over-spending on certain out-of-the-money projects, or buying the wrong ones.
Canadian gold miner, Kinross, recently paid shareholders $33m in order to settle a suit brought by Austin Police Retirement System which said the gold miner had inflated its price by overstating the value of Tasiast, a mine in Mauritania which has since been written down for an eye-watering $6bn.
Barrick Gold Corporation recently lost its bid to dismiss a US lawsuit brought by shareholders who contend it fraudulently concealed problems at its Pascua-Lama project on the border of Argentina and Chile. The project has since been halted but not before incurring capital costs of $5bn.
A South African gold mining executive, who didn’t want to be quoted, said lawsuits of this ilk were increasing in frequency owing to the poor state of the gold sector. Many companies are struggling with massive debt while ex-shareholders have incurred losses.
“Lawsuits are as a result of opportunistic litigation lawyers tracking the performance of listed companies,’ said the gold executive. “If there are serious dips in the share price, they litigate – and claims linked to the size of directors’ and officers’ insurance that are in place,’ she added.
For its part, Barrick is attempting to sell $3bn worth of assets in order to eat into its $10bn debt pile which is so large that it nearly rivals its market capitalisation. It isn’t alone, South Africa’s AngloGold Ashanti wants to take net debt down a third to $2bn.
AngloGold impaired $2.6bn in assets in 2013 although investor relations head, Stewart Bailey, said it was affected by the decline in the gold price rather than leading shareholders astray. In truth, there’s hardly any gold company that has escaped the lash of bullion’s $400 per ounce decline.
Commenting on AngloGold Ashanti’s plans, announced earlier this month, to sell its stakes in its Sadiola and Yatela gold mines in Mali, Standard Bank Group Securities gold analyst, Adrian Hammond, said it was “a move in the right direction’.
“We consider Sadiola and Yatela as non-core assets and believe a sale of both would be positive for the group,’ he said in a note. “Yatela is in closure. Its divestment from the group avoids some $15m to $20m in environmental liabilities. We ascribe no value to Yatela in our valuation.’
Ultimately, AngloGold is facing more major surgery than just selling off non-core assets.
Hence it made a further announcement that it was considering selling all or part of its shares in Cripple Creek & Victor (CCV), a mining complex in the US which at annual production last year of just over 200,000 ounces is double the combined output of Yatela and Sadiola.
What’s at stake is AngloGold’s balance sheet. There’s a $1.25bn bond that it can “call’ – liquidate – as early as 2016 but which carries interest or a coupon rate of 8.5% … which is heavy in anyone’s books.
According to Hammond, AngloGold has between 15 to 21 months of available liquidity in which time it has to chew it’s way through some of its debt and start generating free cash flow from its international division.
This would enable management to begin more serious restructuring, significantly its South African mines which could include their unbundling, he said.
