Big AngloGold investor argues against dilution

AngloGold plans to spin off its foreign assets into a separately listed company. Photo: Supplied

AngloGold plans to spin off its foreign assets into a separately listed company. Photo: Supplied

Published Sep 12, 2014

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Sonja Elmquist

JOHN Paulson, the billionaire whose hedge fund holds 6.6 percent of AngloGold Ashanti, opposed its plan to raise $2.1 billion (R22.9bn) from investors while spinning off non-South African assets because it would destroy shareholder value, he said.

“The concept is good but the execution, the way they’re doing it with this massive dilutive equity offering, it’s value destructive,” Paulson, the founder and majority owner of Paulson & Co, said on Wednesday. “I have absolutely no intention of voting [for] this deal.”

AngloGold, the third-biggest gold producer, said on Wednesday that it would create a new company holding its foreign assets. It planned to retain 65 percent of the new company, which would trade in London, with the remaining equity distributed to shareholders.

AngloGold said it had hired UBS and Goldman Sachs to manage the rights offer.

Paulson had said the company could unlock value if it split into a high-growth international business and a mature gold producer in South Africa. The limited benefits of a partial spin-off were outweighed by the dilution of the equity offering, he said.

AngloGold had shown “tremendous operational improvements this year, but the way this restructuring is being implemented, it’s destroying value because of dilution”, Paulson said.

The spin-off “is intended to allow for a more appropriate valuation of each company through the strategy of separate listings”, David Haughton and Craig Harris, analysts at Bank of Montreal, wrote in a note on Wednesday.

“Reduced corporate costs and focused management are key drivers, but raise the question of why that outcome cannot be achieved in the current structure.”

AngloGold would look to add more commodities to its portfolio of mining assets in South Africa and elsewhere if the spin-off proceeded, said chief executive Srinivasan Venkatakrishnan, who would remain in his position.

It would not buy gold assets outside South Africa.

The offshore gold company would continue to review operations and cut costs, said Charles Carter, who is the executive vice-president for strategy at AngloGold and is to become chief executive of the international spin-off.

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

Barclays analysts Suki Cooper and Christopher Louney wrote in a September 5 report that gold was heading for its first quarterly loss this year and might fall to average $1 150 an ounce next year from $1 260 this year, as the US economy strengthened.

Bullion jumped 70 percent from December 2008 to June 2011 as the US Federal Reserve bought debt and held borrowing costs at a record low to support the economy.

Gold companies also face competition from gold-backed exchange-traded products, as investors bet on bullion without the operational risks from mining.

Paulson started his foray into gold in early 2009, betting that prices would rise amid unprecedented monetary stimulus worldwide.

His tone changed last year as the metal headed for the first annual decline since 2000, telling clients in November that he personally would not invest more money in his bullion fund.

In Wednesday’s interview, Paulson said while it was difficult to predict inflation, after five years of monetary easing investors were “wise to have some gold”.

AngloGold shares declined 0.82 percent to close at R142.80 yesterday. – Bloomberg

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