Kelvin Dushnisky. Picture: GETTY IMAGES
Kelvin Dushnisky. Picture: GETTY IMAGES

AngloGold Ashanti's last SA mine is luring potential buyers as the rally in gold boosts profitability. That interest doesn’t mean CEO Kelvin Dushnisky will achieve his target price.

AngloGold wants about $500m for Mponeng and a number of smaller SA assets, according to people familiar with the matter, who asked not to be identified as the issue is private. Harmony Gold Mining and Sibanye Gold have submitted formal proposals, the people said. The discussions are at an early stage and it’s uncertain that they’ll lead to a deal, they said.

Any acquirer faces additional costs as they bankroll a stake in the mine for employees and nearby communities to comply with a law seeking to address inequities stemming from apartheid.

Mponeng’s valuation is also being squeezed by geological challenges: it’s the world’s deepest mine and requires investment of $1bn to extend its life beyond eight years, according to JPMorgan Chase.

“You have to ask yourself, why would you buy a mine 4km deep?” said Peter Major, an analyst at Mergence Corporate Solutions in Cape Town. “It’s a huge risk. Those that are interested will want to get a discount.”

“We remain committed to streamlining our portfolio — guided by our capital allocation priorities — but we don’t comment on deals in process,” said Stewart Bailey, executive vice-president of corporate affairs at AngloGold.

Harmony CEO Peter Steenkamp said Mponeng could help his company replace depleting reserves, but added that recent changes to SA’s mining laws had raised the cost of doing deals.

In particular, an acquirer would have to fund a 10% stake in the mine for employees and communities to promote black economic empowerment.

“You have to build all this into your price,” Steenkamp said in September.“That option makes SA projects difficult.”

Sibanye interest

Sibanye is also interested, not least because Mponeng lies adjacent to its Driefontein mine, CEO Neal Froneman said.

While the company is subject to a nondisclosure agreement, he confirmed that Sibanye was part of the process.

“Sibanye is well-positioned to deliver shareholder value and consider this opportunity,” Froneman said.

There is also interest from Chinese buyers, including Heaven-Sent Capital Management Group, in some of the smaller AngloGold assets, the people familiar said.

Heaven-Sent acquired another mine from AngloGold two years ago and holds mining assets in SA through Village Main Reef.

“We assess possible new acquisitions as opportunities arise; for obvious reasons we don’t go into the specifics of this process,” James Duncan, a spokesperson for Village Main Reef, said in an e-mail.

Marian van der Walt, a spokesperson for Harmony, declined to add to the comments made by CEO Steenkamp in August.

For the world’s number three gold producer, there could be far- reaching implications. The sale would complete AngloGold’s withdrawal from SA, allowing it to focus on more profitable operations and potentially shifting its primary listing away from Johannesburg to London or Toronto.

The company is restarting operations at Obuasi in Ghana, extending the life of its Geita mine in Tanzania and plans a new gold and copper mine at Quebradona in Colombia.

Structuring Deal

A weaker rand, which lowers costs for SA miners, and a higher gold price are burnishing Mponeng’s appeal. In the second quarter, a key measure of costs at the mine fell to $1,174/oz an ounce, compared with an average gold price of almost $1,309.

While Mponeng would complement their existing operations, neither Harmony, nor Sibanye is flush with cash. Sibanye reported a first-half loss and is burdened by debt piled up during a string of acquisitions in the platinum industry. Harmony reported a loss for the 12 months through June.

AngloGold may be open to receiving part payment in future cash flows from Mponeng  — similar to the deal Sibanye concluded when it bought mines from Anglo American Platinum, said James Bell, an analyst at RBC Capital Markets.

“I think they are willing to be more flexible potentially on valuation but the key message is this is no fire sale,” he said. “If they are getting low-ball offers, I don’t expect them to sell just to get the assets off the books.”