AngloGold Ashanti Limited (ADR) (NYSE:AU) (JSE:ANG) announced a $2.1 billion share sale Thursday in a move to separate its international business into a London-listed company, leaving the South African gold miner to focus on labor-intensive mines at home.
The gold miner will retain a 65% interest in the new company.
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
Debt free after the split
Unveiling the restructuring move, AngloGold Ashanti Limited (ADR) (NYSE:AU) (JSE:ANG)’s chief executive officer Srinivasan Venkatakrishnan said proceeds from the rights issue will be used to repay net debt of about $3.1 billion and the South Africa’s gold miner will have no debt once the split is completed next year, while the new London-listed entity will hold the remainder. Elaborating the restructuring exercise, he said: “The rationale is that the South Africa cash flows and Ebitda can’t be used to service debt”.
He further added that AngloGold will look to add more commodities to its portfolio of mining assets in South Africa and elsewhere if the spinoff proceeds. However, he clarified that the company won’t buy gold assets outside South Africa.
Carter, who is executive vice president for strategy at AngloGold Ashanti Limited (ADR) (NYSE:AU) (JSE:ANG), anticipates the Newco to ride into the FTSE 100.
AngloGold Ashanti to remain domiciled in South Africa
Despite Anglo American plc (LON:AAL) (OTCMKTS:AAUKY) moving its headquarters and main listings abroad, AngloGold decided to remain domiciled in South Africa. Justifying the rationale, its chief executive said: “Every country has its challenges as it develops and South Africa is no exception”.
Paulson’s New York-based hedge fund owns 6.6% of the South African gold minder. Billionaire Paulson earlier said the company could unlock value if it splits into a high-growth international business and a mature gold producer in South Africa.
Following the announcement of spin off, AngloGold Ashanti Limited (ADR) (NYSE:AU) (JSE:ANG)’s shares plunged over 15%. The world’s third largest gold producer by volume has been affected significantly by a drop in gold prices in recent years.
According to Helen Thomas of The Wall Street Journal, the split comes at a steep cost to shareholders, who will receive 35% of an international gold miner with good growth prospects. The holdover AngloGold Ashanti Limited (ADR) (NYSE:AU) (JSE:ANG), which will sell down its holding in the newly created miner over time, will focus on wringing more savings from aging but cash-generative South African mines.