AngloGold Ashanti draws a line under SA gold mining
AngloGold says more attractive investment options in its international portfolio mean it wants to sell its last few local assets
AngloGold Ashanti CEO Kelvin Dushnisky insisted that the company's decision to sell its last remaining South African gold mining assets was "not an indictment" of SA.
The decision to sell its last deep-level South African mine and tailings retreatment operations was motivated by a a practical business choice about where to find the best returns, Dushnisky said in an interview on Thursday.
Its an an end of an era for the company,which can trace its roots back to 1926 with Anglo American's gold mines and more formally to 1944 when it was incorporated as Vaal Reefs Exploration and Mining Company. At one stage, it was by far the largest employer in SA's mining industry, with more than 305,000 people working on its gold mines in the 1980s.
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AngloGold would retain a listing in Johannesburg, possibly not a primary one though, and keep a presence in the city where he said there were world class skills it wanted to retain, Dushnisky said.
"This is not a statement about not investing in SA... The government is making great strides in trying to promote investment. It's not an indictment of SA as an investment destination. It's very specific to the asset.
The decision to find buyers for its Mponeng mine, the world's deepest at 4km below surface, and two tailings operations comes at a point when AngloGold had to decide whether to invest billions of rands in extending the life of Mponeng by 20 years or investing that money elsewhere in its portfolio, Dushnisky said.
The new investment metrics Duskhnisky implemented at AngloGold since he started eight months ago meant Mponeng simply did not match up to those targets.
"This is not about jurisdiction but it's about the other assets in the portfolio that come a little higher in the pecking order of investment returns. This is the premier set of gold assets in SA, but given limited capital the likelihood of us making that investment in Mponeng is reduced," he said.
While Sibanye-Stillwater and Harmony Gold were logical owners of Mponeng, owning the nearby Driefontein and Kusasalethu gold mines, there was also the option of a Chinese buyer wanting the assets, said Nedbank analyst Arnold Van Graan.
Sibanye is coming out of a damaging five-month gold strike and is actively repaying hefty debt while Harmony is preparing to make a sizeable investment in a copper and gold Wafi-Golpu mine its shares with Australia's Newcrest Mining in Papua New Guinea.
"Harmony’s current priorities are to repay debt and advancing the permitting of Golpu," said spokeswoman Lauren Fourie, adding it would assess opportunities "only if it supports our strategy of mining safe, profitable ounces and increasing our margins."
The National Union of Mineworkers said any sale agreement had to protect workers at the assets and keep their conditions of employment. "This doesn't come as a surprise. AngloGold has in recent years sold or shut most of its other South African mines after using their profits to build and buy mines overseas," said NUM spokesman Livhuwani Mammburuu.
The Mponeng mine needs a large capital investment in the next few years to add nine-million oz of gold to the three-million in the eight-year life which has cost AngloGold $350m.
The funds raised from any sale would be put towards repaying debt, making investments in other assets as well as returns to shareholders, he said.
The net present value of the South African assets was about $400m and they made up 15% of group production and 12% of earnings before interest, tax, depreciation and amortisation (Ebitda), said JP Morgan Cazenove analyst Dominic O'Kane.
The sale of the South African assets would be a "key positive catalyst for AngloGold’s share price in our view," he said in a note, arguing the exposure to SA meant the miner was trading at a 50% discount to its North American peers.
SA has become increasingly unattractive as a deep-level mining investment, with electricity prices rising by more than 530% in a decade and set to increase by another 30% over the next three years.