AngloGold Split One Option to Secure South African Assets’ Value

AngloGold Ashanti Ltd. retains the option of splitting off its South African operations into a separate company should investors undervalue the assets held by the third-largest producer of the precious metal.

“We have no plans today to split the business but all options must remain open,” Chief Executive Officer Mark Cutifani said today in an interview in Geneva. “If at end of the day we can’t get true value reflected for the global mix, then we have to look at all options. We’ve become a global company. South Africa is important, but it’s not critical.”

AngloGold, competing with Barrick Gold Corp. and Newmont Mining Corp., mines about a third of its metal and employs about 35,000 people in South Africa. The contribution will decline to about 20 percent by 2016, even as the West Wits and Vaal River operations will remain “high-quality,” according to Cutifani.

A spate of strikes across South African industry idled all of AngloGold’s mines in the nation, spurring the company to cut its third-quarter dividend in half and annual spending plans by $200 million. Quarterly output fell 4 percent to 1.03 million ounces on the strikes. Weaker production led Standard & Poor’s to say on Oct. 18 it may cut AngloGold’s debt rating to junk.

“We’ve taken aggressive steps to protect our flexibility and we only hope that the rating agencies look at those steps in a constructive way,” Cutifani said. “With our global portfolio and flexibility on the balance sheet, we’re in good shape.”

Taking Steps

Platinum, iron-ore, coal and diamond mines in South Africa were disrupted by wildcat strikes that spread from Lonmin Plc’s Marikana platinum mine, where workers bypassed labor unions and won pay increases of 11 percent to 22 percent. About 46 workers, police and security staff were killed in protests and a deadly police response, the worst since apartheid ended in 1994.

“Events in Marikana have changed peoples’ perceptions of risk in South Africa,” Cutifani said. “It’s a major watershed, but it doesn’t have to be a negative.”

The ruling African National Congress conference in Mangaung next month will be important for AngloGold’s strategy, he said, adding that dialogue with the government and labor unions is constructive. The ANC will debate proposals on increasing the state’s economic role, higher mining taxes and a push from some party allies to nationalize banks, mines and telecommunications.

“The outcomes of Mangaung and the policy it sets for the country will be important determinants of how we decide to go forward,” said Cutifani, citing tax policies. “Investors are reacting to the uncertainty in government policy and the good news is that nationalization has been tossed out the door.”

Gold prices, up 2.5 percent in the third quarter from the prior three months, helped AngloGold weather stoppages. Cutifani expects prices to keep rising, given demand from China and India and political and economic volatility in Europe. “It will be consistent and persistent increases in gold in range of $100 to $200 a year,” he said. “Any company that can keep their cost structures below that rate of increase will do very well.”

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