AngloGold to Split Into Two, Sell Shares

NEW YORK ( The Deal) -- South Africa's AngloGold Ashanti ( AU)  said Wednesday, Sept. 10, it will spin off its international assets and sell $2.1 billion of shares to pay down "unsustainable debt" as it seeks to re-energize a business battered by the long-term decline in gold prices.

Johannesburg-based AngloGold will create a new London-listed company to house operations in the Americas, Australia and Africa. Shareholders will be given 35% of the new unit, which could be valued at between $6 billion and $7 billion, Charles Carter, an AngloGold executive vice-president and future CEO of that business, told analysts on Wednesday.

The South African parent will retain the remaining 65% of the company, as well as its domestic assets. It is likely to sell down that 35% stake over time, according to a company source who asked not to be named.

"It has become increasingly clear that the two distinct parts of our portfolio require different strategies, focused management and should be appropriately capitalized to realise their full potential and unlock further value for shareholders," AngloGold Chairman Sipho Pityana said in a statement.

News of the deal and the prospect of dilution from the capital raising pushed AngloGold's South African-listed shares tumbled Wednesday in the wake of the announcement, falling to 15,250 rand ($1,395), down R1,616, or 9.6% on their Tuesday close.

AngloGold shares have lost 60% of their value since the start of 2012, outpacing a three-year, 30% decline in gold prices that has pushed many producers into the red. AngloGold posted a pretax loss of $2.53 billion in 2013 after it wrote down the value of many of its gold assets. It has continued to bleed cash this year, posting a second-quarter pretax loss of $14 million, despite deep cost cutting and an absence of further writedowns.

The losses and the declining share price have put pressure on the company to cut its current net debt of about $2.99 billion. "The level of debts is unsustainably high," AngloGold CEO Srinivasan Venkatakrishnan said on a conference call with journalists. "We need to raise equity whether or not the split goes ahead."

AngloGold plans to sell about $2.1 billion of new shares through a rights issue. The cash will be predominantly used to redeem about 35% of the company's 2020, 8.5% bonds, while remaining funds could be used to repay some revolving credit facilities, the company said.

The debt repayments will leave the South African operation gross debt-free following the split, allowing it to meet a pre-condition for the restructuring imposed by South African authorities. The proposed London-listed company will have about $1 billion to $1.2 billion of debt.

"This [the split] explains the company's previous announcement of its intention to delist from the LSE," Investec Ltd. analysts wrote on Wednesday. The London-listed company will house about 75% of AngloGold's assets by value and account for between 60% and 65% of its gross profit, according to the analysts.

Both the fundraising and the plan to split the company are subject to shareholder votes.

AngloGold is taking financial advice on both the split and the fundraising from UBS AG and Goldman Sachs International. It is taking further advice on its debt management from Barclays plc. Legal counsel is being provided by Cravath, Swaine & Moore LLP, Bowman Gilfillan Inc. and Slaughter and May. The AngloGold board is taking independent financial advice from Rothschild (South Africa) Pty Ltd. and legal counsel from ENS Africa.

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