South Africa’s central bank pressed AngloGold Ashanti (AU +2.2%) to increase the size of a planned share sale that’s opposed by hedge fund manager John Paulson, Bloomberg reports.
AU is said to have initially sought to raise just over $1B from investors to strengthen its balance sheet, but that was increased to $2.1B to satisfy the concerns of the South African Reserve Bank over the split of the company into separate entities housing South African and international operations.
The bank’s insistence may help explain why AU is moving forward with a plan that saw its shares fall sharply and drew criticism from investors including Paulson.
John Paulson, whose hedge fund holds a 6.6% stake in AngloGold Ashanti (AU -1%), says he opposes the miner’s plan to raise $2.1B from investors while spinning off non-South African assets because it will destroy shareholder value.
AU announced yesterday it will create a new company holding its foreign assets; it plans to retain 65% of the new company, with the remaining equity distributed to shareholders.
Paulson has said AU could unlock value if it split into a high-growth international business and a mature gold producer in South Africa, but "the way this restructuring is being implemented, it’s destroying value because of dilution."
AU will retain a 65% stake in the new company, which will have 14 gold mines in the Americas, Africa and Australia that last year generated ~$4B in revenue.
The new company, which would be based in the U.K., would seek to list its shares on the London Stock Exchange and to have secondary listings in Johannesburg and New York.
AU says the separation would simplify the structure of its businesses, allow their management teams to be more economically competitive, and also allow the companies to be more appropriately valued by investors.
The move follows BHP's recent decision to split some of its less profitable assets into a new Australian-listed company; Gold Fields also split its South African assets into a new company, Sibanye Gold, in 2013.
AngloGold Ashanti (AU +1.5%) CEO Srinivasan Venkatakrishnan said he would press ahead with a plan to cut operating costs by $500M by year's end through mine closures and layoffs even if it took an immediate toll on earnings.
AU isn't currently looking for merger or acquisition opportunities, the CEO said after reporting a narrower Q2 net loss, calling the consolidation drive in the sector a potential source of "distraction... Our focus isn't to rush into M&A but to get the operations on a better footing."
Also, production at the two South African mines where it had suspended work after an earthquake last week is set to resume today after losing output of ~20K oz. of gold.
AngloGold Ashanti (NYSE:AU) reports a Q2 loss of $14M, narrowing from a $3.08B loss in the year-ago quarter.
Normalized adjusted Q2 earnings of US$0.19/share, compared with EPS of US$0.02 in the year-ago quarter, with revenues inching higher to $1.36B from $1.3B a year earlier.
Q2 gold output rose 17% Y/Y to 1.1M oz., with higher production at its South African, other African and Australian mines more than offsetting a decline at its operations in Brazil; cash costs were $836/oz. vs. $898/oz. in Q2 2013.
South Africa region posted production at 319K oz., up 4% Y/Y, at an all-in sustaining cost of $1,064/oz, down 12%; international operations posted a 24% rise in gold production to 779K oz. at an all-in sustaining cost of $1,033/oz, down 19% Y/Y.
AU, which says it plans to grow production this year for the first time in almost a decade, foresees current quarter production of 1.06M-1.09M oz. at a cash cost of $850-$890/oz.
The Tanzanian government says it will invest at least $1.2B to revamp its ailing state power utility, as the country tries to guarantee reliable power to domestic and industrial consumers.
It expects the reforms to help the country attract enough investments to diversify power sources and boost generation capacity to at least 10K MW over the next 10 years, from the current 1,600 MW.
Around half of the projected new power capacity will be generated from natural-gas fired plants, as a flurry of natural gas discoveries off the southern coast has made the country a hotspot for natural gas exploration, attracting Exxon (NYSE:XOM), Cnooc (NYSE:CEO), Rosneft (OTC:RNFTF) and BG Group (OTCPK:BRGXF, OTCQX:BRGYY).
Gold mining companies such as Africa Barrick Gold (OTC:ABGLF) and AngloGold Ashanti (NYSE:AU) remain some of Tanzania's largest power consumers.
Hinting at more mine sales ahead, AngloGold Ashanti (AU -0.2%) execs say the biggest miners will put more assets on the block as they seek to bolster margins ahead of a forecast slump in prices.
"Operations that don’t really give you much margin at those prices, really don’t belong in your portfolio, so you will see that continue," says AngloGold VP Graham Ehm; of his own company, Ehm says operations remain under review for potential sales or spinouts, with gold prices more likely to decline than to advance beyond $1,400/oz.
With operations across 10 countries, AU may consider potential sales of assets, including Obuasi in Ghana, Sadiola in Mali or Colombia’s La Colosa, analysts say.
Precious metals miners are broadly lower as gold futures head for their biggest daily drop of 2014, plunging $29.30, or 2.2%, to $1,308.10/oz.
Physical demand has remained short of expectations, Commerzbank's Eugen Weinberg says, and India's decision to maintain a 10% import duty on gold and silver likely will dampen future gold demand expectations from the country.
Barclays, which expects gold to drop to $1,200/oz. by Q3, also expresses caution, saying recent gains across the metals complex look toppy.
Beaten-up gold miner stocks are strong across the board as precious metal prices move sharply higher and take out key technical resistance levels; Comex gold jumped $41.40 (+3.3%) to settle at $1,314.10/oz., the highest level since April 14, and silver added $0.87 (+4.4%) to end at $20.65/oz..