[miningmx] — IT’S a difficult time to be a gold company CEO; not only Great Basin
Gold’s Ferdi Dippenaar finds himself without a job.
In the last eight weeks, two of the world’s largest gold mining companies have also
bid their top executives adieu, and not so fondly either. Barrick Gold – the Canadian
gold company and the world’s largest – fired Aaron Regent, while last week Kinross
sent Tye Burt, its CEO, to an early bath.
Both paid the price for large corporate deals and expansive new projects.
In the case of Barrick, it spun out its African assets in African Barrick in an apparent
rationalisation of its risk, but then paid $7.3bn for Zambian copper producer Equinox
Minerals when prices for the metal were a quarter higher than they are today.
Production was also lower than planned, and a write-down of the asset has been
speculated.
Pascua-Lama, a gold mine in the Andes, could cost Barrick $7.5bn to $8bn,
significantly more than initial estimates of up to $5bn. Production has also been
delayed.
Higher than expected costs, slippages in production, higher capital costs: it’s the
theme tune of mining in 2012, and executives are paying for an almost universal
condition. In the case of Burt, it’s an almost identical story. The takeover of Redback
Mining for $7.1bn and problems with another high-capex mine, Tasiast in
Mauritania, became too much for shareholders.
In the parlance of cricket, this is the time for playing with a straight bat; at least,
that would seem to be a description of AngloGold Ashanti CEO Mark Cutifani’s
approach, who told Finweek his company was not particularly interested in
picking up the likes of Tasiast on the cheap.
“Quite frankly we don’t see any value in those portfolios,’ he said when asked
whether AngloGold would consider participating in the potential break-up of Kinross,
as has been speculated. “We’re not wildly excited by M&A.’
If the group is looking at acquisitions at all, it’s in the pre-production junior
exploration field where balance sheets currently are constrained.
What AngloGold’s got is a pipeline of brownfields expansions that cohere between
2014 and 2016; in fact, by that date AngloGold hopes to bring some 700,000 oz of
new gold into production on an attributable basis. This consists of the expansion of
Cripple Creek in the US, Mongbwalu in the Democratic Republic of Congo, Kibali in
Mali and Tropicana in Brazil.
The group has also beefed up its management presence in Colombia.
Cutifani is probably also mindful of the fact that AngloGold’s net debt is up
significantly quarter-on-quarter to $879m following completion of the $220m
purchase of Kinross’s Serra Grande mine in Brazil. The aim is to keep net debt below
$2bn to retain an investment rating.
“I don’t think AngloGold has gone into the same league as Kinross and Barrick in
terms of spending,’ said Liston Meintjes, who heads Abercrombie Asset Managers.
“Fingers certainly can’t be pointed at AngloGold for overpaying and it isn’t running
behind time with project delivery either,’ he says.
Whether this converts into a compelling case for buying shares in AngloGold Ashanti
is a separate question. If a report by HSBC is proved correct, however, there may be
an investment case. The bank believes the gold price will escalate to $1,900/oz by
the year-end owing to political pressures and the “fiscal cliff’ that the US is fast
approaching. Cutifani’s own estimation is gold will move through $1,700/oz during
the year from a current price of $1,610/oz.
“If HSBC has got it right, then Anglo-Gold is going to make buckets,’ said Meintjes.
“But for now it’s steady-as-she-goes for AngloGold,’ he says.
– The article first appeared in Finweek
