AngloGold Ashanti Ltd., the world’s third-largest gold producer, will probably use the $820 million raised from selling its Cripple Creek & Victor mine to repay a high-yield bond next year.
The company will use all the sale proceeds for debt reduction, it said on Tuesday. Its highest interest-bearing debt is a $1.25 billion bond due July 2020 with an 8.5 percent coupon that has a call option in July next year.
“AngloGold will be looking to take out that bond first because it’s the most expensive,” James Oberholzer, a Johannesburg-based analyst at Macquarie First South Securities (Pty) Ltd., said by phone Tuesday. “The sale gets the company a good portion towards its medium-term debt-reduction plan.”
With $3.1 billion of net debt prior to the sale, or about 80 percent of its market value, AngloGold’s key strategic goal this year was to reduce its borrowings without diluting shareholders by selling stock. Hedge fund billionaire John Paulson, an AngloGold investor, helped scupper the company’s 2014 plan to pay down debt and split its South African and international assets by opposing an accompanying $2.1 billion share sale.
“The debt reduction box is ticked,” Chief Executive Officer Srinivasan Venkatakrishnan said Tuesday. “We have done it with zero dilution to our shareholders.”
Following the sale, AngloGold’s net debt, or borrowing minus cash balances, is at its target of 1.5 times earnings, compared with 1.97 times at March 31, Venkatakrishnan said.
CC&V, in Colorado, produced less than 5 percent of AngloGold’s gold last year yet was sold for 25 percent of the company’s market value, he said.
With its cash balances boosted by the sale, AngloGold is weighing its options as to which debt to pay off first, Chief Financial Officer Christine Ramon told reporters.
“We are targeting the high-yield bond and one of the options can be to sit on that cash and wait for that bond to be redeemed,” she said.
The yield on that bond has declined 43 basis points to 6.41 percent since AngloGold first announced it was considering selling CC&V on March 31. That compares with an 8 basis-point drop in dollar-debt rates of emerging-market mining companies, JPMorgan Chase & Co. indexes show. Gold has dropped 0.4 percent to $1,180.86 an ounce in the period.
The shortfall between the $820 million raised by the sale of CC&V and the $1.25 billion bond may be funded by refinancing existing or new debt facilities, Ramon said.