AngloGold prepared to keep mines as gold price rises
Miner will keep operations it is selling if offers are not good enough, says CEO as gold price tops six-year high
With strong interest from potential buyers of its SA assets, AngloGold Ashanti is staying fixed on its course of mine sales and investments, despite the gold price shooting past six-year highs.
The gold price’s jump above $1,500/oz as trade tension increases between China and the US, came outside the six-month reporting period for AngloGold, in which it reported a taxed profit of $116m compared with $43m the year before.
AngloGold has put Mponeng — the world’s deepest mine at 4km below surface — and its tailings-retreatment operations in SA up for sale, along with its Cerro Vanguardia mine in Argentina and its stake in the Sadiola mine in Mali.
AngloGold is prepared to retain these operations if it does not achieve the price it wants for them, CEO Kelvin Dushnisky said during a media call.
“It’s a more challenging market for divestments than previous years because of the speculation of potential assets coming to the market,” he said.
“For all three processes, we have multiple interested parties in discussions and in various stages of due diligence,” he said. There is a “high level of interest” in the SA assets from credible buyers, AngloGold opened its data room to these prospective buyers in July and management is making presentations on the assets.
“At the end of the day, if we don’t receive offers we think are adequate, we are happy to own these assets. We’ll continue to run them well and generate cash from them,” he said.
Asked in an interview if AngloGold regards Mponeng as a “must-sell” asset along with the tailings-retreatment business because of concern about Eskom's dire financial situation and the risk posed to electricity supply along with a potential sovereign ratings downgrade, Dushnisky said AngloGold is willing to keep it if no suitable offer is received.
“A lot of work has gone into restructuring Mponeng, and we could run it for seven or eight years without the need for material capital infusions. We could even go beyond that, optimising the mine plan without the need for massive capital investment,” he said.
Mponeng has a life of eight years and needs a multibillion rand investment to add another 20 years of life, an investment that AngloGold has found does not deliver returns compared with other potential projects in its portfolio.
“The recent rise in the gold price doesn’t change our thinking either, but it does reaffirm our resolve we are not going to sell anything at a deep discount,” Dushnisky said. There is “good potential for it to hold at these levels” of upwards of $1,500/oz.
AngloGold is justifiably proud of a safety record achieved by the end of June of having 449 days without a fatality. This has been helped by the disposal of large, labour-intensive, deep-level mines in SA.
“Anglogold has reduced its SA footprint to the extent that deep-level mining is now virtually eliminated from its portfolio and is in the process of selling its last SA asset,” said Noah Capital analyst Rene Hochreiter. He expects to “see Mponeng leaving the fold soon as it is on the wrong end of the cost curve.”
AngloGold generated $343m of cash from its operations, up from $321m a year earlier. However, after investing in capital projects, most notably the Obuasi mine in Ghana, and interest repayments, the company posted a cash increase for the period of $12m.
Of the $1.8bn of gold income generated during the period, SA accounted for $244m, the lowest of the four regions in which AngloGold operates. Its mines in Africa made up $971m, the largest contributor followed by the Americas and Australia.
The gross profit from SA was $15m, up from a $10m loss a year earlier, but still a barely relevant contribution in the group’s $414m gross profit.
Group revenue fell to $1.8bn from $2bn a year earlier. Gold sales dipped to 1.58-million ounces from 1.65-million ounces.
The gold price received was $1,299/oz compared to $1,310/oz a year earlier.
“Even though these results are flat, we think that the second half will be better with project ramp-ups, SA asset sales and better production numbers,” Hochreiter said.
Correction: August 12 2019
A previous version of this article stated that AngloGold Ashanti had put its stake in the Siguiri mine in Guinea up for sale, instead of its stake in the Sadiolo mine in Mali.