AngloGold Share Sale U-Turn Puts Emphasis on Gold Miner’s Debt

September 16, 2014 Posted by admin

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.

Van Eck

“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
Johannesburg yesterday.

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.

Capital Lost

“Taking that feedback into account, we’ve done the right
thing by removing the uncertainty from the market,”
Venkatakrishnan said.

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
ajansevanvuu@bloomberg.net

To contact the editors responsible for this story:
Will Kennedy at
wkennedy3@bloomberg.net
Simon Casey

Article source: http://www.businessweek.com/news/2014-09-15/anglogold-share-sale-u-turn-puts-emphasis-on-gold-miner-s-debt

‘Scrap gold market will be huge in India’

September 15, 2014 Posted by admin

Given the demand-supply gap, we have to look at scrap, says MMTC-PAMP MD

MMTC-PAMP is the first and the only London Bullion Markets Association-accredited gold and silver refinery in the country.

The company, a 27:73 joint venture between state-owned MMTC and Switzerland-based PAMP SA, has invested around ₹220 crore to set up its refinery near Gurgaon.

In Pune for the 11th India International Gold Convention, Rajesh Khosla, Managing Director, MMTC-PAMP, spoke to BusinessLine on refining and other issues facing the bullion market. Edited excerpts from the interview:

Why has no one else thought of setting up a bullion refinery in India?

I am puzzled why no one took the initiative for setting up a refinery. Perhaps it was because it became easy to import refined gold.

But the arithmetic is wrong. Refining it locally leads to economic value-add and also creates jobs. India imports around 900 tonnes annually, and we have a capacity for 100 tonnes (last year we did 42 tonnes). I wish more refineries are set up, because that is the only way forward.

Interestingly, there are no regulatory hurdles or approvals required for setting them up as they fall under the automatic investment route and 100 per cent foreign ownership is possible.

Given the global scramble for dore bars, is there any alternative source for raw material?

Availability of dore is always a constraint. Of 2,900 tonnes mined globally every year, nearly 900 tonnes has to be refined in the four countries in which it is mined. So, around 70 refineries globally vie for the remaining 2,000-odd tonnes.

Given the demand-supply gap, from a long-term perspective we have to look at scrap. There is a huge global trade in scrap.

Has MMTC-PAMP taken any steps in this direction?

There is an estimated 25,000 tonnes of gold in the country and scrap can be big. We ran two collection centres in Delhi on a trial basis last year and collected 30 kg from each. People can bring in their scrap gold — it is weighed, melted, homogenised and tested for purity right in front of them in less than an hour. A nominal fee is taken for refining it.

It took us 18 months to perfect the technology as it is difficult to homogenise on a smaller scale. We believe we have it now and we have the confidence to do this for housewives.

A plan to expand such centres across the country is on the anvil and we want to open three or four every year. We want to make it possible for people to be able to book an appointment online.

You have been a votary of gold monetisation schemes. What is the progress on this?

We need to create a new currency — gold. The idea is to have a gold account as an add-on to a rupee savings bank account where people can deposit their gold and get a fixed percentage more of gold at the end of, say, three years.

A survey we conducted of 6,000 people in 25 cities and 60 per cent said they would make use of the facility if provided. The software is in advanced stage of being readied and we will test it next month.

We are in discussions with logistics companies … there is a lot to sort out. For instance, how will banks and the regulator react, and what will be the taxation issues? All the stakeholders need to be incentivised. We are trying to fine-tune the arithmetic.

Article source: http://www.thehindubusinessline.com/markets/commodities/scrap-gold-market-will-be-huge-in-india/article6410211.ece

India’s love affair with gold may be over, as prices slide

September 14, 2014 Posted by admin


* Indians opt for stocks and banks over gold

* Investment demand for gold slumps

* Modi’s financial inclusion may change saving habits

By Rajendra Jadhav and Indulal PM

VANGAL, India, Sept 12 (Reuters) – Kiran Laxman Salunkhe
used to buy jewellery during religious festivals, but sliding
gold prices have led the young Indian farmer to break with his
family’s traditional investment.

This year Salunkhe has deposited his hard-earned savings at
the bank for the first time in a decade and bought farmland.

“I bought jewellery when gold price was 32,000 rupees (per
10 grams) last year. Now jewellers won’t pay me more than 27,000
rupees if I want to sell. Why should I invest in gold,” said
Salunkhe, who farms 15 acres of sugar cane in Vangal, a village
250 km (160 miles) south of Mumbai.

“Nowadays it is risky to keep jewellery. Burglaries are
rising,” he said. “With a fixed deposit there is no risk.”

A one-quarter drop in local gold prices over the
past year has shaken the confidence of Indians in the precious
metal as a store of value and dented demand in the world’s
second-biggest buyer.

The main beneficiary has been Indian stocks, which have been
clocking up records on hopes that Prime Minister Narendra Modi
can deliver on the promise of “better days” ahead that swept him
to power in May’s general election.

Beyond short-term sentiment, a major push by Modi for every
household to get a bank account, better education and living
standards, and falling inflation expectations, could herald a
more secular change in investing habits.

“The attachment of Indians to gold will remain,” said Harish
Galipelli, head of commodities and currencies at Inditrade
Derivatives and Commodities Ltd., referring to gold’s culturally
embedded role in dowry gifts or decorating Hindu temples.

“But as the banking network expands and literacy rises,
people in rural areas will explore other investment products
like mutual funds or bank deposits. The mindset is slowly
changing.”

If the national obsession with gold does fade that would
help curb India’s external deficits – gold is the second biggest
item on the import bill after oil – and cap world gold prices
that are trading sideways in 2014.

BACK TO EQUITIES

If the crowds selling scrap gold to Kapil Parekh at his shop
in Mumbai’s Zaveri Bazaar are anything to go by, the shift by
small-time speculators out of gold is continuing unabated.

“Many investors who came after 2008′s stock market crash
were short-term investors,” said Parekh.

“They came when the stock market wasn’t giving returns. Now,
since shares are rallying, they are liquidating gold and going
back to equities. They may come back.”

One customer, Dinesh Jain, said he had sold 64 grams of gold
bought since 2011 and was investing the proceeds – now worth
nearly $3,000 – in information technology stocks.

India’s investment demand for gold slumped by 67 percent in
the June quarter from a year ago to 49.6 tonnes, World Gold
Council (WGC) data showed. Based on industry and WGC estimates,
investment demand could nearly halve to 190 tonnes this year.

Investment demand was 37 percent of total 2013 gold sales.

Indian gold exchange-traded funds, a financial product that
sophisticated investors use to gain exposure to the metal, have
suffered 15 straight months of outflows.

In contrast, turnover on Mumbai’s main NSE bourse is up by
61 percent, while $50 billion has flowed into mutual funds in
the financial year starting April 1 – up sixfold from the entire
previous year.

Term deposits in Indian banks have also risen but by a more
modest $3.6 billion since April, compared to a drop of $2.9
billion last year, central bank figures show.

SHIFTING SENTIMENT

A decade-long surge in gold prices to 2013 led investment
buying of bars and coins to quadruple. Over the same time, sales
of traditionally more popular jewellery rose by just a quarter.

But since hitting a record high of 35,074 rupees per 10
grams in August 2013, local gold prices have fallen steadily,
tracking weakness in overseas prices and a strengthening rupee.

In the past, such price falls would have attracted bargain
hunters. Not now.

“The 11-year rally in gold prices created a perception that
they will only go up. This price fall has broken that
conviction,” Prithviraj Kothari, vice president of the India
Bullion Jewellers’ Association, told Reuters.

“Now people are diversifying their investments. This trend
will increase in the coming years,” added Kothari, cautioning
that expectations of a tightening in super-loose U.S. monetary
policy would weigh on gold.

“During uncertainly people chase gold. Now, since we have
stability, economic growth will revive. It will ultimately push
up the stock market and real estate prices.”

But for some India’s love affair with gold will endure.

“Last year, despite a premium of over $100 (per ounce over
London prices), buyers were crowding my counter,” said a
Mumbai-based dealer at a state-run bank.

“Now, the premium is just $5. The peak festive season is
ahead. But I am waiting for customers. There is no hysteria.”

(Writing by Rajendra Jadhav; Additional reporting by Suvashree
Chaudhury; Editing by Douglas Busvine and Michael Perry)

Article source: http://www.reuters.com/article/2014/09/12/india-gold-idUSL3N0R52ZR20140912