AngloGold Ashanti Ltd. AU recently announced that it has inked an investment agreement with Randgold Resources Limited GOLD to form a joint venture for the redevelopment of the former’s Obuasi gold mine in Ghana. Shares of AngloGold Ashanti have gained around 11%, since the announcement on Sep 16.

According to the agreement, Randgold will lead and finance a development plan to renovate Obuasi for a long-life mining business with a competitive cost structure and attractive returns. The development plan is based on this feasibility study of the mine and is anticipated to be completed by four monthsIn 2012, AngloGold Ashanti launched a program to modernize the Obuasi mine, and by the end of 2014, the company reduced the mine to limited operations, stopping underground production and cutting the workforce. However, the company continued to process tailings and started a feasibility study, with an aim to revive the mine.

Both companies will be jointly responsible for funding the redevelopment of the Obuasi mine. The mine will be operated by an entity of the Randgold group and the joint venture company will have an equal number of directors representing both companies. Thus, board and shareholder decisions will be approved by both parties.

According to the agreement, Randgold is responsible for delivering the new development plan to the boards of both parties by Jan 31, 2016. The joint venture will be formed only on the fulfillment of quite a few conditions, including the approval of the development plan, the transaction being sanctioned by the South African Reserve Bank (“SARB”), consent of the lending banks under certain existing financing agreements of AngloGold Ashanti and receipt of any applicable anti-trust approvals.

Consent of the SARB is mandatory within 45 days from the date of the agreement. Additionally, financing consent of AngloGold Ashanti is required within 60 days, along with other applicable anti-trust approvals which are to be satisfied by Feb 19, 2016.

Moreover, the joint venture will be formed after receiving the requisite approvals for the execution of the development plan from the Government of Ghana acceptable to both parties, including all necessary environmental licenses and permits for the project, which are due for completion by Mar 2016. Upon closure of the transaction, both AngloGold Ashanti and Randgold will fund their share of total costs involved. However, per the agreement, AngloGold Ashanti will continue as the sole owner of the Iduapriem mine, and certain other non-core assets.

Zacks Rank

AngloGold Ashanti currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the basic materials sector include Fortescue Metals Group Ltd. FSUGY, and ArcelorMittal MT, both carrying a Zacks Rank #2 (Buy).

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