South African gold mining firm AngloGold Ashanti has completely abandoned an extensive overhaul of its business and a multi-billion dollar rights issue after its investors manned a full-scale revolt.
The company – Africa’s largest producer of gold – has announced that it may be forced to sell assets as a result of the shareholder action in order to safeguard its finances.
AngloGold unveiled plans earlier in September to split its South African and overseas businesses and create a new London Stock Exchange-listed company, in light of regulatory changes and spiraling labor costs in the country. Executives also intended to issue a further $2.1 bn of new share rights, targeting what CEO Srinivasan Venkatakrishnan described as an ‘unsustainably high’ debt of $3 bn.
The plans prompted widespread criticism from investors and analysts, most of them unhappy about the size of the new rights issue and the effect it would have on current shareholder value.
One such critic is John Paulson, president of hedge fund Paulson & Co, which holds around 6.6 percent of AngloGold. ‘While the separation of the company into an international business and a South African business makes strategic sense, the small amount of the spin-off, the likely holding company discount and the highly dilutive equity offering would, on a net basis, destroy shareholder value,’ Paulson writes in a letter to stakeholders.
AngloGold dropped all its plans to split and issue new shares after consulting around two thirds of its shareholder base, though investors remain concerned about the high level of debt the company has on its books. Venkatakrishnan has also conceded that asset sales ‘are on the cards’ as his company considers a number of options.
Michael Schroder, a fund manager at Old Mutual, says that though the rights issue made sense to many investors, the lack of detail was a problem. ‘Markets do not like uncertainty,’ he notes. ‘People potentially interested in buying shares in the new company would have seen that the big parent might have wanted to offload the stock at some point, so there could have been an overhang of shares for years to come.’
AngloGold’s scrapped plans match those seen elsewhere in the international mining trade. Arrium, an Australian iron specialist, is currently planning an A$754 mn ($684 mn) new share issue in order to reduce its debt, as ore prices in the country continue to fall. ‘There is increased uncertainty over the extent and timing of recovery,’ writes Arrium’s chairman, Peter Smedley, in a shareholder notice.
