Public candour over mine sales benefits bondholders


The US Federal Reserve isn’t alone in using forward guidance to manage investors’ expectations.

by Kevin Crowley

AngloGold Ashanti Ltd has kept investors abreast of each stage of its planned sale of the Cripple Creek & Victor mine in the US and is reaping the rewards in lower bond yields, even before a sale price has been agreed.

The world’s fourth-largest gold producer said November 3 it planned to sell assets to reduce debt and narrowed this down to a single operation three months later. In March, AngloGold identified CC&V as the mine being sold, and on May 11 said it had received binding bids.

“It’s a sensible strategy,” said Esther Krukowski, a London-based credit analyst at BlueBay Asset Management, which manages $59,1 billion. “You may think, ‘Gosh, is this a fire-sale?’ but if it has been well-flagged and part of a portfolio review to de-leverage the balance sheet then it makes a lot of sense.”

Bondholders have rewarded the company for its candour. The yield on AngloGold’s $1,25 billion of notes due July 2020 has fallen 59 basis points to 6,35% since October 31, the business day before it first announced it was exploring a sale. That compares with a 7 basis-point increase in dollar debt of emerging-market mining companies, JPMorgan Chase & Co indexes show.

Marked Contrast

AngloGold’s detailed disclosure is in contrast to September last year, when it took investors by surprise by announcing a $2,1 billion share sale to pay down debt and split the company in two. Within five days, chief executive officer Srinivasan Venkatakrishnan scrapped the idea after opposition from investors including hedge-fund billionaire John Paulson.

“They were upfront about being over-leveraged when they announced the asset split in September,” Olga Budovnits, a credit analyst at Union Bancaire Privee in Zurich, said by phone. “Therefore they have to be transparent about how they solve the problem.”

AngloGold spokesman Stewart Bailey declined to comment on the different levels of disclosure surrounding the two events.
Selling CC&V may raise about $800 million, Andrew Byrne, a London-based analyst at Barclays Plc, wrote in a May 11 note.

A disposal at that price would cause the company’s ratio of net debt to earnings before interest, taxes, depreciation and amortisation to fall to 1,3 times, he said. AngloGold’s net debt was 1,97 times adjusted Ebitda at March 31, it said on Monday.

The company will use the proceeds from the sale to cut $3 billion of net debt, Venkatakrishnan said in an interview this week.

“Our debt levels are sticky at about $3 billion plus,” he said. “To make a meaningful reduction in the debt relying only on cost reductions is not going to be the answer.”

While he’s keeping his options open on which debt he’ll trim first, the company’s $1,25 billion of bonds yielding 8,5% “is certainly front and centre of our minds”, he said.

For now, the pressure is on Venkatakrishnan to deliver the sale at a price that allows him to back up his public statements.

“It’s important to indicate to the market what your plans are,” BlueBay’s Krukowski said. “But in six months’ time, if they haven’t been achieved, then it can come back to haunt you.”
—Bloomberg News