[miningmx.com] – ANGLOGOLD Ashanti CEO, Srinivasan Venkatakrishnan, declared the company’s debt reduction strategy complete following the $820m sale of its US mine Cripple Creek & Victor (CC&V) to Newmont Mining.
“It fixes the balance sheet in one go and puts us in strong position with regard to net debt to EBITDA [which would be maintained at a ratio of 1.5x],” said Venkatakrishnan in a conference call this morning.
“We are not reliant on any more asset sales. As the navigation systems say: ‘You have arrived at your destination’. The debt reduction box is ticked,” he said.
AngloGold announced last night it had also agreed a net revenue royalty payment of 2.5% from CC&V with Newmont which Macquarie Research calculated was worth $50m to $60m over the remaining life of CC&V.
AngloGold is, however, pressing on with the sale of its Sadiola and Yatela mines in Mali and would countenance potential business partners for its Colombia business on a ‘farm in’ basis, said Venkatakrishnan.
AngloGold said on March 31 that it was selling its 41% stake in Sadiola and 40% stake in Yatela, which produced 85,000 and 11,000 attributable ounces of gold respectively in 2014. IamGold, a Canadian gold producer, said in April it was in discussions on buying AngloGold’s shares in the assets.
Christine Ramon, CFO for AngloGold, said the company would “keep its options open” in respect of using the cash from the sale to Newmont, although it was likely that it would be used to repurchase a $1.25bn bond issued July 2013 that carries an 8.5% coupon. The bonds mature in July 2020 but may be redeemed from July 2016.
An important aspect of the transaction was that AngloGold had avoided diluting shareholders in right-sizing its balance sheet.
The sale of CC&V also means that AngloGold can focus on reaping the rewards of the capital already spent at Kibali and Tropicana, its Congo and Australian projects, rather than having to fork out some $200m for an expansion of CC&V that was due.
“Shareholders were concerned about dilution when it comes to the de-leveraging,” said Venkatakrishnan.
The benefit from the $200m in capital saved and the $820m in sale proceeds would have come at “significant dilution to the shareholders,” he said. There were no plans to issue equity in the future while AngloGold would stick to its dividend policy of payouts after capex and debt management
“What we won’t do is borrow money to pay dividends and that is bad financing mechanism,” he said.
Analysts were supportive of the transaction which was worth a quarter of AngloGold’s market capitalisation, but only 5% of its production – perhaps an indication of just how undervalued the company has become.
“We expect the asset disposal to be a positive catalyst for the stock, reducing investor concerns of a potential capital raise, allowing investors instead to focus on the discounted nature of the portfolio and the free cashflow potential of the asset base should the company be able to stem negative free cashflow at Obuasi and/or Colombia,” said Andrew Byrne, an analyst for Barclays in a morning note.
