AngloGold Dividends May Return in 2017 as Cash Flow Rises

  • Bullion miner’s board will debate new dividend policy
  • First-half cash flow tripled to $108 million on higher prices

AngloGold Ashanti Ltd. will consider resuming dividend payments next year after a four-year hiatus as higher bullion prices, weaker currencies in countries where it operates and lower interest payments boost the free cash flow of the world’s third-largest miner of the metal.

“We’re getting closer, every quarter or six months as we go, to resuming dividends,” AngloGold Chief Executive Officer Srinivasan Venkatakrishnan said on a call with reporters Monday. “Whatever we do would be sustainable and obviously would not be from borrowed money.”

The board will meet to discuss what to do with excess cash toward the end of this year and announce any new policy early in 2017, Venkatakrishnan said. AngloGold last paid a dividend in the first half of 2013 as the price of the metal slumped 28 percent that year.

Gold has soared 26 percent this year to about $1,340 an ounce as the U.S. dialed back expectations for increasing interest rates and central banks in the developed world moved to negative rates. That boosts the appeal of the metal, which pays no interest and is a haven in times of economic turmoil. That’s helped AngloGold’s revenue, as did first-half weakness in the currencies of South Africa, Brazil, Australia and Argentina, countries where the company has mines and pays costs.

Cash Flow

Cash flow tripled to $108 million in the first half of the year while net debt dropped 32 percent to $2.1 billion, the Johannesburg-based company said in a statement Monday. Adjusted headline earnings were $159 million in the first half of the year compared with $61 million in the same period a year earlier.

The dividend “is likely to be based on a percentage of free cash flow,” Venkatakrishnan said. Other uses of cash would include paying down net debt and investing in mine-expansion projects in Guinea, Mali and Australia.

That said, the company is “sitting comfortably” with net debt at 1.44 times adjusted earnings and the growth projects don’t require “big capital sums” Venkatakrishnan said.

AngloGold maintained its production forecast for this year at 3.6 million to 3.8 million ounces. Cash costs are estimated at $680 to $720 an ounce, and it kept the prediction for capital spending at $790 million to $850 million.

Safety Stoppages

Three people died in mine accidents at the company’s operations in South Africa in the period, and the safety stoppages related to these resulted in about 44,085 ounces of lost
production, “given the downtime and resultant ramp-up period,” AngloGold said. The stoppages saw “impediments in reaching investment targets,” it said. The country’s law requires that work is halted to investigate the causes of the incidents.

AngloGold fell 4.6 percent to 284.50 rand by 4:08 p.m. in Johannesburg, making it the worst performer in the 163-member FTSE/JSE Africa All Share index.

“I’m not sure whether they will manage to hit their 10 percent increase in production from South Africa with the number of safety stoppages that we are seeing,” Sibonginkosi Nyanga, an analyst at Momentum S.P. Reid, said by phone. “Chances are their production guidance is at risk.”

The market may also be focusing on how AngloGold has managed to maintain its forecast while having to adjust for stronger currencies and therefore how much of a risk the cash-cost prediction is, Richard Hatch, a London-based mining research analyst at RBC Capital Markets, said by phone.

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