[miningmx.com] – ANGLOGOLD Ashanti has responded to shrinking cash flows precipitated by the lower gold price environment by offering a corporate bond described by one banker as “a dripping roast”.
Offering terms at between 8.5% to 8.75% interest – some 650 to 675 basis points above some US Treasury bills – the bond will replace a $750m convertible bond due in May, 2014.
Any funds raised over and above the $750m would be used for capital purposes and to provide flexibility for an expiring revolving credit facility, market sources said. AngloGold confirmed it would make an announcement on the Johannesburg Stock Exchange later today.
The refinancing will provide relief for AngloGold’s balance sheet which is carrying debt partly from having to finance some 600,000 to 700,000 ounces a year in new low-cost gold production which is due to come on later this year.
It comes at a cost, however. The bond is expensive but market sources said that in the context of the lower gold price, emerging market debt outflows and the onset of the Northern Hemisphere summer, it makes sense to act.
Perhaps most importantly, the corporate bond comes only weeks after ratings agency Standard & Poor’s downgraded AngloGold to so-called junk status. “Bear in mind that AngloGold would have consulted with the rating agencies ahead of raising the bond,” a market source said.
AngloGold Ashanti CEO, Srinivasan Venkatakrishnan said at the company’s first quarter results announcement that there was $3.4bn in undrawn liquidity headroom on the balance sheet.
However, the deleterious effects of the lower gold price may have had the potential of lenders renegotiating terms on the debt.
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.
On July 15, AngloGold said it would book a post-tax impairment of up to $2.6bn for the second quarter. It would also seek joint ventures to help it finance projects, stop lower margin projects, cut back or stop capital spend on low margin mines, and scythe further into operating and indirect costs.
