AngloGold Ashanti Ltd. (ANG)’s decision
to scrap a $2.1 billion share sale in response to investor
opposition will put the debt burden of South Africa’s largest
gold miner under scrutiny.
Chief Executive Officer Srinivasan Venkatakrishnan proposed
the equity offering alongside a plan to place international
operations into a separate company. That would have left the
South African operations debt-free. Now, AngloGold needs to find
another way to grapple with the industry’s worst debt-to-equity
ratio as gold prices trade near an eight-month low.
“The problem is not going to go away,” said Peter Major,
a mining analyst at Cadiz Specialised Asset Management in Cape
Town. “The only way you get of it is with a rights issue. Every
play they put forward is going to sound hollow now.”
Investors including hedge-fund billionaire John Paulson
opposed the issue because it diluted existing shareholders too
much. Having rejected that plan, the company will focus on
getting cash from existing operations while considering asset
sales, Venkatakrishnan said yesterday.
“The fundamentals of the business are still strong if you
see what we did in terms of production and costs,” he said on a
conference call. “You can expect to see cash flow generated
from these to help de-leverage the company.”
With $3.2 billion of net borrowings, AngloGold has a net
debt-to-equity ratio of 103 percent, more than any other major
gold miner, according to data compiled by Bloomberg.
Nonetheless, some investors said the rights offer had been
unnecessary and applauded yesterday’s decision.
“The company realized that the market and us shareholders
wouldn’t have supported the rights issue,” said Charl Malan, a
mining analyst at Van Eck Associates Corp., which holds 5.2
percent of AngloGold shares. “Venkat and the rest of the
managers are the best mining managers you’ll find. They’re doing
a good job of bringing costs under control.”
The company’s shares, which slumped a record 15 percent on
Sept. 10 when the share sale was announced, rose 2.1 percent in
Paulson, whose Paulson Co. holds 6.6 percent of the
company and had campaigned for the split, objected to the size
of the share sale and planned to vote against the proposal.
“The concept is good, but the execution, the way they’re
doing it with this massive dilutive equity offering, it’s value-destructive,” he said last week
The South African Reserve Bank only consented to the
proposal to split the company up after AngloGold agreed to raise
enough money to become debt-free, people with knowledge of the
matter said last week.
“Taking that feedback into account, we’ve done the right
thing by removing the uncertainty from the market,”
A sale of assets was one possibility the company will
consider, he said. It may bring in partners for its Colombia
projects to reduce cash investments, Venkatakrishnan said.
“We don’t have a gun held to our head,” he said,
referring AngloGold’s debt facilities and bonds. “We’ve got
time to look at all of these options.”
To contact the reporter on this story:
Andre Janse van Vuuren in Johannesburg at
To contact the editors responsible for this story:
Will Kennedy at