What a UK domicile means for AngloGold Ashanti’s access to debt

ANGLOGOLD Ashanti left South Africa in 2020 when it sold Mponeng, the last mine in its local portfolio. Nonetheless, the announcement earlier this month that the South African Reserve Bank had approved a primary listing of the firm’s shares in New York seemed momentous to the country’s mining sector.

That is partly because it comes at a time when South Africa has never looked less attractive to investors. A perfect storm of politics and macroeconomics has sent the rand plummeting against the dollar. Still, AngloGold CEO Alberto Calderon insists the switch in primary listing is “not about South Africa”.

In one respect, that’s true; but in another, it’s not at all.

Having a primary listing in New York means investors with trillions of dollars in spending power can now buy AngloGold shares rather than having to make do with tax-inefficient American depositary receipts. For a company with mines in Ghana, Australia, Argentina and the US — and none in South Africa — a New York primary listing makes perfect sense.

It also means an upgrade in index. Once shares are available in New York, AngloGold will join the MSCI US rather than the MSCI emerging market index as is now the case. Similarly, AngloGold will attract tracker funds on the CRSP and Russell indices. For a CEO whose clarion call is restoring AngloGold to the rank of elite international gold miners, opening the door to these institutions is a no-brainer.

It’s also worth mentioning that AngloGold’s internationalisation is not synonymous with the deterioration in South Africa’s economy. In fact, a primary listing in New York was an ambition when Mark Cutifani was the firm’s CEO. That’s going back to 2007, when Cutifani joined the company. It may surprise readers to remember that only five years before that the Financial Times judged Eskom the world’s best-run utility.

Yet there are also compelling reasons why South Africa is bad for AngloGold and why a domicile in London — also part of AngloGold’s corporate restructuring — is a must-do.

Credit ratings agencies give the UK’s debt a sparkly AA grade, which is a quantum improvement on the murky, junky, grey-listed waters of South Africa, where sovereign debt is rated a lowly BB-. Cheaper debt allows AngloGold easier access to the merger and acquisition frenzy under way in the world’s gold sector, as evidenced most recently by Newmont’s takeover of Newcrest Mining. Once completed, it will be the largest gold deal in history, and it is the culmination of a host of other deals in the past two years.

Calderon cites Gold Fields’ difficulties in completing its proposed takeover of Yamana Gold, a Canadian firm. Simply put, shareholders couldn’t stomach paying the premium Gold Fields offered while absorbing the South African discount — a function of a Joburg primary listing.

The discount to South African gold companies is real, according to AngloGold. It calculated at the time of its announcement that its shares were trading at a 25% discount to Barrick and Newmont even after a doubling of its share price in the past 12 months. It’s fearful that in not making shares available in New York it will backslide as dollar gold eases, as it surely will do as rate hikes top out and macroeconomics improve.

For these reasons AngloGold believes the $500m in the transaction’s costs — about 5% of its market value related to taxes payable in South Africa — is warranted. Easily so, say Bank of America analysts, owing to “value upside both from a standalone rerating and potential participation in ongoing gold sector consolidation [point of view]”.

Having said this, Calderon doesn’t plan on any major dealmaking for AngloGold after the New York listing. “We don’t need to grow,” he says. “At three million ounces a year we can keep replacing [ounces].”

Fixing the house

AngloGold has forecast production of 2.45 million to 2.61 million ounces for this year, but with organic growth projects, including recent acquisitions consolidating properties in Nevada, the company will grow.

Better first, Calderon says, to “fix the house”, because a New York listing alone won’t secure the rerating. That is achieved only if AngloGold hauls in its costs, which were allowed to get out of control in recent years. On this front, Calderon has had mixed results. Inflation ran at about 14% in the firm’s first quarter, which the company has put down to a lag effect. However, a promise Calderon made last year to reduce cash costs to below $1,000 an ounce seems a lost cause. “I can’t be held responsible for inflation, and I won’t be,” says Calderon.

But if he does make progress raising production and lowering costs — often complementary forces in gold industry economics — it’s likely the New York listing could usher in unwanted attention.

As Cameron Needham, an analyst for Bank of America, observed at AngloGold’s presentation to analysts, taking AngloGold out of the JSE could open the door to a hostile takeover.

“It would be disingenuous to say that being listed in New York would not, on the margin, increase our ability [to be] a takeover target,” Calderon said in response. “I look at the landscape and I see one or two digesting big whales. But you can’t stop doing things because you are afraid of others’ actions.”