AngloGold Ashanti: spin class

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How badly does the City of London need another gold miner? Its stock market is a goldbug UN even with prices, and earnings, in a funk. Ex-Soviet miners (Polyus Gold, Polymetal) vie for capital with producers in Africa (Randgold, Centamin) and the Americas (Hochschild, Fresnillo).

There is one country that London seems to see ever less of: South Africa. AngloGold Ashanti, the world’s third-largest gold producer by volume, has a third of its production there. It applied to delist from the UK last month, leaving listings in South Africa and the US.

Some of AngloGold may return soon enough. But it would be as a spin-off from mines outside South Africa, announced on Wednesday. This is a veritable UN too, from low-cost African and Australian assets to future projects in Colombia. The inefficient, labour-intensive pits of South Africa would be absent. AngloGold’s rump would initially retain a two-thirds stake. And a $2bn rights issue would remove debt from the rump balance sheet.

How badly do London investors want – and how much would they pay to re-rate – such a miner? Given the size of its South African discount, AngloGold would hope for a lot. Its shares change hands for 15 times next year’s forecast earnings – versus more than 25 times for Randgold.

But spin-offs must do more than simply move value around. They should allow the re-rating of what remains. The value could be cash freed up at the AngloGold rump: repaying the debt would reduce interest costs by $150m per year, says Goldman. A miner run for cash is normally the company being spun off, not the other way around. There has to be growth too. For AngloGold, that may mean more South Africa: attempting to consolidate gold or even platinum assets there. Anglo American (a mining major keen to offload the latter) take note.

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