Anglo breaks its links to gold

Sale of AngloGold Ashanti ends era

ANGLO American’s $1.28-billion (R12.6-billion) sales of its residual 11.3 percent holding in AngloGold Ashanti came sooner than some analysts had been expecting.

The group no longer has any interests in gold and the sale of its last-remaining interest in AngloGold means that its exposure to South African mining is largely in coal, platinum, iron ore and, indirectly through De Beers, diamonds.

The group has been reducing its exposure to gold, particularly as South Africa’s production of the metal is in an irreversible decline.

The AngloGold shareholding has been bought by Paulson & Co, a US investment firm that has been successful in hedge fund operations during the current recession.
Inevitably, perhaps, the sale to a leading hedge fund manager is seen by pro-gold commentators as a bet against currencies, particularly the dollar.

Mark Cutifani, AngloGold’s chief executive, has expressed his pleasure that a company of Paulson’s status has chosen AngloGold as a means of increasing its exposure to gold. As for Anglo , the group said the sale proceeds will be used for “general corporate purposes”.
The total amount will have to be repatriated to South Africa in terms of the country’s exchange control regulations, though this is a technicality as it means the future investments here will require less foreign funding.

At the end of 2008, Anglo had borrowings totalling $2.4-billion and an average interest rate of 12 percent in South Africa out of a total global net debt of $11-billion.
The debt was largely racked up in the purchase of Brazilian iron ore interests, whose prospects are currently less promising than at the time of acquisition.

As a result, Anglo has been scrambling to reduce its gearing, with the sale of AngloGold the only real immediate prospect. Dividend payments have been halted and capital spending projects deferred, underscoring the pressure on the group’s balance sheet.

Company insiders have insinuated that management would like to get rid of the currently cash-guzzling 45 percent interest in De Beers, but that presupposes a buyer with the cash and stomach for a diamond market that is falling rapidly as the recession bites.