AngloGold Plans $2.1 Billion in Shares as Paulson Wins Split

AngloGold Ashanti Ltd. announced a $2.1 billion share sale as the world’s third-biggest gold miner bowed to pressure from investors including billionaire John Paulson to spin off operations outside South Africa.

AngloGold fell the most on record in Johannesburg after the company said it hired UBS AG and Goldman Sachs Group Inc. for the share sale to repay debt. A new international company will trade in London and be run by Charles Carter, the Johannesburg-based gold producer said today in a statement.

Paulson’s New York-based hedge fund, which owns 6.6 percent of AngloGold, said the company could unlock value if it splits into a high-growth international business and a mature gold producer in South Africa. The country’s central bank has approved the proposal, AngloGold said. The government initially resisted a split, people with knowledge of the matter said in April 2013.

“A re-rating could happen if the market buys into the management teams and strategies, but it will take time,” said Hanre Rossouw, commodities chief for emerging markets at Cape Town-based Investec Asset Management, which manages $123 billion including AngloGold shares. “The government is taking a more pragmatic view. It likes the idea of a South African mining champion that can drive South African projects.”

AngloGold sank 15 percent to 143.98 rand by the Johannesburg close, paring its value to 58 billion rand ($5 billion).

Competing Effectively

“Nobody wants to hold the share because you don’t know where they’re going to pitch the rights issue at,” Peter Major, a mining analyst at Cadiz Specialised Asset Management, said today by phone. “They’re going to work out whatever a fair tradable market price is and I’ll bet you they’re going to pitch it way below that.”

The spinoff “will allow the two entities to compete with their peers more effectively,” Chief Executive Officer Srinivasan Venkatakrishnan told reporters in a conference call today. “It creates simpler and more focused entities.”

Proceeds from the rights issue will be used to repay net debt of about $3.1 billion, Venkatakrishnan said. AngloGold will have no debt once the split is completed next year, while the new London-listed entity will hold the remainder, he said.

“The rationale is that the South Africa cash flows and Ebitda cannot be used to service debt,” Venkatakrishnan said, refering to earnings before interest, taxes, depreciation and amortization. AngloGold will retain a 65 percent interest in the new company.

FTSE 100

AngloGold, which was overtaken as the world’s biggest gold producer more than 12 years ago, will look to add more commodities to its portfolio of mining assets in South Africa and elsewhere if the spinoff proceeds, according to Venkatakrishnan, who will remain in his position. It won’t buy gold assets outside South Africa.

The international gold company will continue to review operations and cut costs, said Carter, who is executive vice president for strategy at AngloGold.

“There’s a long order of business to do from day one within that company without worrying what’s happening beyond that,” Carter said on the conference call. “We expect Newco to ride into the FTSE 100.”

The company could be worth 3 billion pounds ($4.8 billion), “which would place it neatly in the gap between African Barrick, Polymetal and Randgold,” Investec Securities said in an e-mailed note to clients.

Profits Eroded

AngloGold, with 21 operations in 11 countries, said in July that it’s seeing its profits being eroded by costs from closing its Yatela mine in Mali and reorganizing operations in Ghana. The company is also trying to improve the quality of its portfolio after gold prices fell last year.

The producer has previously said it’s considered splitting its assets. In February 2011, former CEO Mark Cutifani said in an interview that a division was being debated to increase the value of the company’s shares.

The South African government has been critical of companies such as Anglo American Plc that have moved their headquarters and main listings abroad, saying that investment in the country has been cut and jobs lost.

AngloGold’s decision to remain domiciled in South Africa was a “vote of confidence” in the country, Venkatakrishnan said. “Every country has its challenges as it develops and South Africa is no exception.”

The company told the National Union of Mineworkers, the largest representative of workers at its operations, that it won’t consider job cuts as a result of the restructuring, Frans Baleni, the organization’s secretary-general, told reporters in Johannesburg.

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