AngloGold recovers from revolt and losses

A couple of Septembers ago, AngloGold Ashanti faced a shareholder revolt. Management of Africa's biggest gold miner was challenged after proposing a hugely unpopular restructuring plan that involved splitting the business into international and local arms.

Over the course of five days in 2014, the world's third-largest gold miner proposed and retracted the plan, the most unpopular element of which was a rights issue.

Shareholders - the most vociferous being famed billionaire US investor John Paulson - rejected the deal intended to address a debt hangover from ill-conceived adventures, a common feature in the balance sheet of mining groups.

Excited by the Chinese-inspired commodity super-cycle, miners had raised debt to fund expansion.

AngloGold's proposed solution to its problems was eventually canned as investors expressed concern about how much equity capital would need to be raised.

story_article_left1

What was learnt from those manic few days was that "you're only down if you decide to stay down", AngloGold Ashanti CEO Srinivasan Venkatakrishnan said in an interview with Business Times on the sidelines of Cape Town's Mining Indaba this month.

From the experience, the company has changed its philosophy by treating equity as even dearer than cash, achieving a sense of capital and cash discipline and also looking internally at how to use self-help measures to deliver better results, he said.

Over the past few years, the company has culled staff at its head office: from a high of 1900 employees, the mining house now has 350 employees. Restructuring on the operational front is still a possibility, but it cannot yet offer numbers.

"It depends on the gold price environment and it also depends on the operations levels and maturity," said Venkatakrishnan.

"Over time, you would see some of the shafts close. I think that's the reality here, but we said we will not go first to the job cuts. That will be the last."

Venkatakrishnan said that through its restructuring AngloGold was "one of two large gold majors that haven't had to tap the market for any equity over the past six years ... that's a unique club to belong to".

Randgold & Exploration was the other.

Having recovered from the shareholder revolt of a couple of years ago, AngloGold resumed dividends for the first time since 2013.

In its latest annual results, posted this week, the company showed a much improved balance sheet, reporting a profit of $80-million (about R1-billion) compared with a loss of $70-million previously.

block_quotes_start With hindsight, we wish we hadn't had to live through those five days, but there are people that go through that and come out strong block_quotes_end

Sibonginkosi Nyanga, analyst at Momentum, said that if the company was making money and had managed to reduce its debt, it was the right time for shareholders to get a return.

The company's debt was manageable, said Nyanga.

At the time of the restructuring plan, which was backed by investment banks, the mining house had a debt load of $3.7-billion, which was more or less the equivalent of its market capitalisation. The figure has now halved to $1.9-billion, freeing up the balance sheet.

At $4.8-billion, the company's current market cap is more than double what it was, having appreciated close to 7% since its failed proposal on September 10 2014.

Over that time, the gold price gained 0.6% and the JSE gold mining index climbed 3.6%.

The restructuring plan "was a misstep - we've got back in line and we are proceeding", Venkatakrishnan said.

The proposed restructure would have created a London-listed entity to house the company's international assets with South African assets remaining at AngloGold Ashanti.

story_article_right2

The move would also have meant its operations in Ghana and all other countries except South Africa would be managed by the new company.

"It was a good learning experience. With hindsight, we wish we hadn't had to live through those five days, but there are people that go through that and come out strong," he said.

Asked whether the mining company would ever return to the option of splitting its assets between local and international, he was noncommital.

For now, AngloGold is focusing on reinvesting in its existing portfolio, instead of mergers and acquisitions activity like that at Sibanye Gold. The company owns 17 mines across the regions in which it operates.

Shareholders are happy with the decision instead of "blowing our brains in M&A", said Venkatakrishnan.

Nyanga said AngloGold had the capacity and probably should be doing M&A, but it was a matter of developing what it had now.

Venkatakrishnan said the company had to prioritise safety at its South African operations this year. It lost 104,000 ounces in production because of safety stoppages.

Nyanga said all gold mining companies were having issues with their South African businesses. That probably spoke to the larger issue of deterioration in ore grades and the environment in which they operated when it came to Department of Mineral Resources regulation issues.