AngloGold Ashanti Reviving South African Spinoff Plans

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If at first you don’t succeed, pay off some debt and try again (a few years later). Sure, it doesn’t sound right, but it does seem to accurately describe the situation at AngloGold Ashanti (AU), the #3 gold producer in the world, which according to Reuters, is once again looking to spinoff its South African mining assets into a standalone entity. The idea was first floated about three years ago, but shareholders (including then superstar fund manager John Paulson) were not happy with the idea and effectively shut it down after the company sought a related rights issue. Since then, the company’s net debt has come down a bit so the thinking now is that the company could pursue the plan without shareholders assent. Of course, that doesn’t mean shareholders will be happy with the plan, but apparently, they had seemed supportive of the general idea back in 2014. Although Mr. Paulson’s stake has since come down, he is still a large shareholder in the company with over 3% of the shares, so he would be a name to watch for potential dissent.

Reuters notes that discussions are still at an ‘early stage’ but the plan is to list its international assets, which includes mines in Western Australia, Brazil and Ghana, in London, leaving the South African assets with its Johannesburg listing. Apparently, Harmony Gold (HMY) is interested in acquiring some the company’s South African assets as well. According to Reuters, the impetus for isolating South African assets is that the country is currently suffering from an unfavorable cocktail of political instability, a stronger currency and new, controversial mining rules. Credit ratings could also be a factor here as well.

Anytime a South African mining spinoff is floated, the comparisons to BHP Billiton’s (BHP) 2015 spinoff of South32 (SOUHY) inevitably come out. That one has outperformed its parent company by quite a large margin over its lifetime, +38% vs. -15% (note – not total return), but I suspect some of that has to do with expectations (South32 was not a fan favorite at launch) and specific metal/resource exposure. If AngloGold Ashanti were to move forward, the only metal price that will matter in this case will be gold.

Disclosure: Author holds no position in any stock mentioned.