AngloGold considers asset sales to pay down debt

VANCOUVER — Volatile gold markets have shifted the goal posts for miners, and South Africa’s AngloGold Ashanti (NYSE: AU) has responded by streamlining operations and getting a better grasp on its balance sheet. The company has implemented a series of what it calls “self-help measures” to control operating costs, and is contemplating asset sales to reduce debt.

During a conference call on Nov. 3, CEO Srinivasan Venkatakrishnan explained that AngloGold has been “optimizing all forms of expenditures, improving the portfolio quality and sweating its assets harder.” The company’s efforts looked to have paid off in the third quarter, with all-in sustaining costs on the decline and production up year-on-year.

Third-quarter production totalled 1.13 million oz. gold at total cash costs of US$820 per oz., which compares to 1.04 million oz. gold at total cash costs of US$809 per oz. during the same period in 2013. 

AngloGold had guidance for the quarter of between 1 million and 1.1 million oz. at cash costs of US$850 to US$890 per oz. 

Meanwhile, all-in-sustaining costs — which include sustaining capital as well as corporate and exploration costs — were down 10% year-on-year to US$1,036 per oz.

“Our two strongest headwinds remain the gold price and inflation across the eleven countries in which we operate. Notwithstanding these headwinds, we’ve been able to pull every lever within the business to deliver improvements and, importantly, both nominal and real cost reductions,” Venkatakrishnan said, noting that gold production is up between 8% and 14% on a year-to-date basis, while cash costs have dropped 6%.

As a result AngloGold saw its free cash flow total US$30 million during the third quarter, which compares to a US$222-million total outflow during the same period last year. But the company still struggled under a US$3-billion debt load, and Venkatakrishnan indicated the management team would like to cut that number by US$1 billion to reach a “comfortable level.”

In September the company presented a plan to shareholders that involved splitting its international and South African projects into two vehicles with separate market listings. One of the major pillars of the strategy was a US$2.1-billion rights issue geared towards eliminating debts at its African mines, but shareholders rejected the idea shortly after it was proposed.

AngloGold’s new approach will involve “portfolio simplification” via partnerships and sales or joint ventures of operating assets. Venkatakrishnan mentioned the company’s La Colosa gold deposit and Nuevo Chaquiro copper-gold discovery, both in Colombia, as well as its Obuasi underground gold mine in Ghana, where operations are expected to be under care and maintenance by year-end.

On Nov. 3 the company released a maiden resource at Nuevo Chaquiro, 60 km southwest of Medellin. AngloGold holds an 88.5% interest in the project alongside joint-venture partner B2Gold (TSX: BTO; NYSE-MKT: BTG). The porphyry-style system hosts 604 million inferred tonnes grading 0.65% copper, 0.32 gram gold per tonne and 4.38 grams silver per tonne. The company notes that “Nuevo Chaquiro has potential to expand further at depth and along strike.”

“We have and we will continue to be proactive managers of our balance sheet,” Venkatakrishnan concluded. “We are also maintaining the option of selling or joint venturing an operating asset or two if needed for value, and we’ve already received inquiries from parties who have the financial wherewithal to do deals.”

BMO Capital Markets analyst David Haughton — who has a “market perform” rating on AngloGold — labelled the company’s third-quarter results “slightly negative” due to lower-than-anticipated earnings. Haughton wrote on Nov. 3 that “in South Africa, steps are under way to consolidate the regions to further reduce cost. The focus on debt reduction is encouraging, but the balance sheet remains a concern.”

AngloGold shares have plummeted 44%, or US$6.94 over the past six months, en route to an US$8.81-per-share close at press time. 

The company has 403.6 million shares outstanding for a US$3.6-billion market capitalization.