High flying AngloGold redeems $471m in 2020 bonds

HIGH flying after a 22% recovery in the dollar gold price this year, AngloGold Ashanti has cancelled $471m in debt through the early redemption in bonds due in 2020.

Assuming cash of $484m as of December 31, the group’s net debt would be reduced to about $1.2bn from just over $2bn a year ago. It’s likely that given the improvement in the gold price, AngloGold’s net debt is probably even better.

In a well publicised note, ratings agency Moody’s estimated that the surprise exit of Britain from the European Union would introduce further uncertainty into the global markets equal to $120m in free cash flow in the second half of the year.

Moody’s based its estimate on a gold price of $1,300 per ounce and an exchange rate of R15 to the dollar and A$1,35 to the dollar.

Optimism regarding gold stocks has been reflected in the performance of shares in the world’s gold companies, especially those with South African exposure where the rand has heavily weakened against the dollar this year.

Shares in AngloGold Ashanti 11% in the last seven days taking gains to 135% in the year to date. Similarly, Gold Fields is 60% stronger year to date while Harmony Gold and Sibanye Gold are 214% and 105% stronger so far this year.

Goldman Sachs said in a note this week that gold shares globally would be in a strongly net cash positive position, partly owing to the dollar gold price improvement, but also as a result of self help measures such as AngloGold’s balance sheet deleveraging.

We we have noted before, gold companies are ahead of their industrial counterparts in terms of having repaired their balance sheets,” said Goldman Sachs in a report. It added that it expected gold companies to be net cash by the end of 2017.

“Given limited growth capex we expect them [gold shares] to generate an average of 10% free cash flow over the next four years,” said Goldman Sachs in the note.

“As such, we believe they could be on the cusp of ramping up returns which in turn could see gold equities outperforming the commodity,” it said.

By redeeming the 2020 bonds, which had been arranged at an 8.5% interest rate at a time when the company was in significant cash flow negative distress, and which cost the company $40m a year to finance, AngloGold Ashanti has edged closer to a redemption of dividend payments.

“The dividend is a key component of our investment case,” said Srinivasvan Venkatakrishnan, CEO of AngloGold, in a conference call with analysts in May. “Every quarter of positive cash flow takes us closer to that,” he said.

AngloGold said the 2020 bonds would be redeemed through existing cash and existing facilities. “We haven’t specified the combination,” said Stewart Bailey, senior vice president of investor relations for AngloGold.

In addition to the redeemed bonds, AngloGold also has $700m in bonds, also due in 2020, but at a lower 5,375%, as well as later dated bonds $750 and $300m due in 2022 and 2040 respectively.