JOHANNESBURG (miningweekly.com) – The restructured and recapitalised AngloGold Ashanti would be able to deliver more bang for the buck as the South African operations morphed from six to three and the international assets were cut loose to strut their own stuff, an upbeat CEO Srinivasan Venkatakrishnan (Venkat) outlined following the proposal that AngloGold be split in two, asking shareholders to chip in $2.1-billion to make it debt free.

“It’s an opportunity that probably knocks once in its lifetime,” Venkat said during a media conference call in which Mining Weekly Online took part.

The Johannesburg- and New York-listed gold-mining major this week sprung a surprise by asking shareholders to approve a spin-off of the company’s international assets into a separate London-listed Newco, which would be accompanied by the consolidation of its South African assets into West Wits, Vaal River and Surface Operations kernels.

Newco CEO-designate Charles Carter said all shareholders would be given the opportunity to participate in the share uplift that would be provided by Kibali and Tropicana, set to be at full tilt by the mid-2015 listing, along with the ongoing expansions at Cripple Creek and Victor, in the US, and expected traction at Obuasi.

“We fully intend to hit the ground running,” Carter commented, adding that Newco’s tried-and-tested designated team knew its assets incredibly well.

The South African Reserve Bank has given the nod to two simpler and more focused companies being created to suit their different strategic and operational profiles and labour union Solidarity general secretary Gideon du Plessis threw his union’s support behind the decision, which he said strengthened the South African focus and preserved jobs.

Venkat foresaw the separation putting the South African assets at the forefront of safe and sustainable deep-level mining with the help of new reef-boring technology, which was able to recover commercially viable gold safely from rich shaft pillars and which would, in turn, cause overall grade to soar, increase production, boost productivity and reduce costs.

Then, once the 1.3-million-ounce-a-year priority area of gold mining had been fully taken care of, the South African business would embark on a multicommodity group strategy in South Africa and beyond.

Newco, by contrast, would focus solely on gold and gold-related deposits.

Even if shareholders decided against restructuring, equity capital raising would still have to go ahead to eliminate the company’s unsustainably high levels of debt.

Historical guarantees would be grandfathered and Newco excluded from reliance on the South African business to bank its balance sheet.

The $2.1-billion equity capital would be used mainly to repay existing debt and the South African business would have to be debt free on separation to comply with reserve bank conditions.

Earnings and cash generation would sustain Newco, which would be left with net debt of $1.2-billion.

“We are liberating two good strategies rather than being diluted in one pool,” said Venkat, who added that the separation would allow both businesses to compete effectively at reduced cost levels with the other gold-mining companies listed on the LSE.

Investec Securities mining analysts outlined the peer group that Newco would compete against as the London-listed African Barrick, with a £1-billion market capitalisation, Polymetal, with a £2-billion market value, and Randgold Resources, which was riding high at a value beyond the £4-billion mark.

Investec said Newco’s value could be £3-billion, excluding capital raising adjustments, which would place it in a neat investor gap.

The investment bank put AngloGold’s current market value at R68-billion (£4-billion) and pointed out that AngloGold’s international operations generated 60% to 65% of gross profit and made up 75% of the asset base.

On a pro forma basis Newco was already competitive and Carter said line-of-sight would be given to dividend declarations over time.

AngloGold was proposing the separation because its South African and international assets had increasingly divergent profiles with investment propositions that were blended and diluted and separate listings would allow each business to be more appropriately valued.

AngloGold will continue to be a South Africa-domiciled company under a new name and Newco will have an inward South African listing on the JSE. 

Thirty-five per cent of Newco will be demerged from AngloGold, which will initially retain a 65% controlling interest.

Venkat will continue to lead AngloGold together with incoming CFO Christine Ramon, chief operating officer Mike O’Hare and Italia Boninelli.

Carter will be joined by AngloGold chief operating officer Ron Largent and AngloGold executive team members Graham Ehm, Maria Sanz Perez and David Noko.   

Each business would chart its own course under separate identities.

The combined corporate costs of both entities would be materially reduced and separate listings would also allow each to reflect their individual investment cases and associated access to capital in distinct markets.

"The two distinct parts of our portfolio require different strategies to realise their full potential and unlock further value for shareholders,” new AngloGold chairperson Sipho Pityana said.

The existing AngloGold board would remain with the exception of Michael Kirkwood, Newco’s designated chairperson, and David Hodgson, who would resign to join the Newco board once established.

AngloGold would have the right to nominate two nonexecutives, who would initially be Pityana as deputy chairperson and Venkat, for as long as the company’s shareholding in Newco was higher than 20%.

AngloGold said that returning to production growth, commissioning two new projects and significantly reducing costs against the background of a 25% drop in the gold price in the last two years had not been enough to rerate its share price, which had been languishing for some time.

Its second-quarter production was up 17% to 1.098-million ounces, all-in sustaining costs were 19% lower at $1 060/oz, corporate and marketing costs were cut 65% to $20-million and earnings before interest, taxes depreciation and amortisation were up 33% to $382-million while a record safety performance was posted.