AngloGold Ashanti sells South African assets to Harmony Gold

AngloGold Ashanti (NYSE: AU) is selling its assets in South Africa to Harmony Gold (NASDAQ: HMY) in a deal worth about US$300 million.

Harmony Gold has nine underground operations in the country’s Witswatersrand basin and an open-pit mine on the Kraaipan Greenstone belt.

AngloGold said it decided to sell its remaining producing assets and related liabilities to Harmony Gold after a nine month sales process.

The portfolio of assets includes AngloGold’s Mponeng underground mine; the Tau Tona and Savuka mines, tailings storage reclamation sites; its mine waste treatment operation (Mine Waste Solutions); and a surface rock dump processing business.

The company will retain its interest in Rand Refinery Ltd. and its obligations related to medical costs for retired and remaining employees under the Silicosis class action settlement

The proceeds will be paid in cash and deferred payments, with additional proceeds if AngloGold’s West Wits assets are developed below its current infrastructure.

Under the deal, AngloGold will receive US$200 million in cash at closing. Deferred payments will be based on US$260 per oz. payable on all underground production sourced from the West Witts mineral rights (the Mponeng, Savuka and Tau Tona mines), in excess of 250,000 oz. per year for six years starting in January 2021 (around US$100 million); and US$20 per oz. payable on underground production from the three mines below their current infrastructure (which currently consists of 8.53 million oz. in reserves). AngloGold estimates that the latter reserves would deliver about US$170 million.

Kelvin Dushnisky, AngloGold’s CEO, said the sale will help “sharpen our management focus and capital allocation on the highest return investment options available to us.”

AngloGold has 14 gold-producing operations in nine countries.

“Although the consideration is below our carrying value of ~US$570 million, we view the announcement as incrementally positive given the potential for valuation uplift from a more streamlined portfolio and a possible listing in London in the near-term,” Raj Ray, a metals and mining analyst at BMO Capital Markets in London, stated in a research note.

Ray has a target price on the company of US$27 per share and an outperform rating on the stock.

At press time in New York, AngloGold’s shares were trading at US$19.22 within a 52-week trading range of US$11.29 to US$23.85. The company has a US$7.1-billion market capitalization.

Harmony Gold’s shares were trading at U$3.03 within a 52-week range of US$1.57 to US$3.93, and the company has a US$1.63-billion market capitalization.

Outside of its mines in South Africa, Harmony owns the Hidden Valley open-pit gold and silver mine in Papua New Guinea and a portfolio of projects that include a 50% stake in the Wafi-Golpu project in Papua New Guinea’s Morobe province through a joint venture with Newcrest Mining (ASX: NCM).