AngloGold’s tough stance raises questions over SA presence
New CEO Kelvin Dushinsky disposing of assets that don’t fit new strategy
AngloGold Ashanti's mine in Argentina is up for sale as new CEO Kelvin Dushnisky takes a hard line on assets and exploration tenements that do notfit the new strategy he outlined on Tuesday for the world's third-largest gold miner.
AngloGold, which reported a strong return to profit in 2018, has within six months put Sadiola in Mali and Cerro Vanguardia in Argentina up for sale, a process Dushnisky stressed was part of a strategic reorganisation of the company's 14 mines rather than any need to repay debt or to raise capital.
Dushnisky’s maiden results presentation was notable for the clear, unequivocal strategy he outlined around asset retention criteria, investment hurdles, debt levels, project evaluation and production costs.
“We think a clearer approach should be welcomed by the market even if it is potentially not as ‘radical’ as some may have hoped,” said RBC Capital Markets analyst James Bell.
“This is not a ‘big-bang’ change but instead includes refinement of aspects of AngloGold’s existing strategy namely a focus on margins and balance sheet flexibility,” he said.
While Cerro Vanguardia is a profitable mine, with one of the lowest costs of production in AngloGold, the operation is an isolated, standalone mine with not much that can be added to it, Dushnisky said, adding there was the need for a new tailings site in the future requiring a capital investment.
The focus in AngloGold is to keep assets that are in clusters to exploit a critical mass in supply negotiations and government talks, or to retain mines and exploration prospects that had great geological potential, he said.
AngloGold will lower its net debt to earnings before interest, tax, depreciation and amortisation ratio to one times and possible less from 1.5 times, keeping its balance sheet strong and ensuring dividend payments to shareholders, he said.
Against those comments and AngloGold’s views on Cerro Vanguardia it is difficult to make an argument for a long-term future in the asset suite of the Mponeng mine in SA.
"Mponeng is an asset where we don't have to make a decision now. It has eight years ahead of it where we don't have to make a material capital investment," Dushnisky said. "So we are focused on the assets we have identified for divestment."
AngloGold has invested $350m over six years to give the world’s deepest mine at 4km below surface an eight-year-life, but it has to make a decision within the next two years on a further investment of billions of rands to deepen the mine and give it a further 20 years of life.
If the studies underway into the extension project do not deliver a strictly applied internal rate of return of 15% or more at $1,200/oz, a challenge for deep-level mines in SA where paybacks are over a long period, then it is unlikely the project will be triggered or that the mine will be kept by AngloGold.
Not only does Mponeng have to clear that investment hurdle but it will be weighed against other projects in AngloGold, which is pushing hard on advanced exploration prospects in Colombia and tenements in the US.
The Obuasi mine redevelopment in Ghana will pay back its investment of some $500m in six years and deliver 400,000oz of low-cost gold, marking it out as the kind of project AngloGold wants to pursue, with or without partners.
Dushnisky said it was highly likely it would bring a partner in to develop the copper and gold deposit at Quebradona in Colombia.
AngloGold was not interested in other companies’ mines, he said.
Barrick has merged with Randgold Resources, and, under the leadership of Mark Bristow, is expected to dispose of some of its mines. Dushnisky was president of Barrick before joining AngloGold.
AngloGold would, however, seek stakes in interesting junior miners or exploration companies to keep its strong pipeline of projects stocked, Dushnisky said.