AngloGold is vulnerable whilst the question of a permanent CEO remains unanswered

UNTIL the recent correction in the gold price, AngloGold Ashanti heavily under-performed the GDX, the Van Eck exchange traded fund, and peer group companies.

On a year-to-date basis, the GDX is 18% higher compared to -3% for AngloGold shares. The firm’s South African headquartered rivals, Gold Fields and Harmony Gold, are 32% and 16% stronger in comparison. Since August 1, shares in Gold Fields have shed 32% of their value, the same as AngloGold.

According to one industry source, the company is vulnerable to a takeover. There’s no suggestion any such transaction is being proposed, but it’s hard not to think rival companies have not discussed it; Barrick Gold in particular.

Other than the share price performance, there are other sectoral considerations that could amount to deal rationale. Firstly, industry consolidation is still in the air, even after two years of fairly active deal-flow.

And whilst Newmont Mining and Barrick have grown their sources of production, AngloGold has diminished its with the sale of Mponeng and Mine Waste Solutions (MWS) in South Africa to Harmony Gold, a transaction concluded in September.

There are doubtless solid reasons for the sale of South African assets to Harmony: for instance, it sensibly reduces overall operating cost and capital costs, and lowers the firm’s exposure to South Africa’s regulatory regime and attendant safety risks.

Yet the resignation of CEO Kelvin Dushnisky in September, the guy who fronted the deal, isn’t a good look for AngloGold. Whilst the board looks around for a replacement, the leadership vacuum question will be asked, notwithstanding interim CEO, Christine Ramon’s experience and skill.

Since becoming interim CEO, Ramon has checked some boxes. The dividend policy has been adjusted allowing for an improved payout; guidance has been reinstated; and the $700m bond the firm got away in September is, at a coupon rate of 3.75%, the firm’s cheapest. Under her watch, the sale of Mponeng and MWS was completed.

Yet whilst there’s no permanent CEO, the company looks driverless.

Could Sibanye-Stillwater join Barrick in an AngloGold carve up? A speculative thought at very best, especially as Sibanye’s investor relations team says it has no knowledge of any such idea, although one is sure the idea has been kicked around.

Barrick is likeliest to have the most appetite for such a transaction. It shares Kibali, the 750,000 ounce a year mine in Democratic Republic of Congo, with AngloGold, a clear tier one asset it would love to get its hands around. (It already operates the mine).

AngloGold’s Geita in Tanzania, which has huge life expansion potential, is in a district Barrick feels confident given the patch up of its relationship with the administration of re-re-elected Tanzanian president John Magafuli these past 12 months.

Barrick is reaping the benefits of two years of an implemented strategy just as AngloGold should be benefiting from two years Dushnisky’s strategy. His departure was terrible timing and it’s hard to remember when the company was as ‘betwixt and between’ as now.