Mining Monday: AngloGold Ashanti, Hulamin

AngloGold net debt down 30%, revitalises mine plans. Tough times ahead for Hulamin – Warren Dick – Mineweb.

HANNA ZIADY: It is Monday so we are bringing you our weekly Mining Monday feature where we take a look at what is making news in the mining sector. Editor of Mineweb Warren Dick joins us now for that discussion.

Warren, good to have you with us. AngloGold Ashanti issued results today. You spoke to the CEO, who goes by the name of Venkat. What are some of the highlights of those results – or lowlights as the case may be?

WARREN DICK: I think the main highlight, Hanna – and thanks for having me on the show – is the way they’ve addressed net debt. This was a company that had a large amount of debt, I think over $3 billion. They’ve been able to reduce that by 30% this last year through a combination of selling one of their assets, the Cripple Creek Mine in the US. They got about $800 million for that. They also cut capex by about $200 million.

And then they have also had this relentless focus on costs, which have driven down what we call the all-in sustaining costs, which are the unit costs of their existing mines. And that’s allowed them to pay down 30% of this net debt, and that net debt is actually within their target now of 1.5 times ebitda. So a very positive story on that side, and that gives them a balance sheet that allows them to choose what they want to do as opposed to being dictated to by having to deal with this massive debt that they had.

HANNA ZIADY: And those all-in sustaining costs, as you were showing me earlier, have halved effectively over the last how many years?

WARREN DICK: Over the last three years. So on a quarter-by-quarter basis in 2012 they were at about +/- $1 500/oz, so the gold price at that time was at $1 700/oz. We are now looking at these unit costs down to roughly half of that, about $757/oz. So you can see a massive push there and that’s been done through a combination of optimising their procurement, revisiting their mine plans and structuring their mine plans around which is the best way to mine these assets.

And then obviously the portfolio changes – they’ve sold some mines and they’ve closed some of the higher-cost mines. So it’s all a very good story that’s given them the cash flow.

HANNA ZIADY: And do you think that because of the significant fall in debt, improved balance sheet, improved cash flow, the company is likely to start paying dividends again?

WARREN DICK: Well, that’s a great question and that was raised by more than one analyst at the results presentation today. They haven’t paid a dividend since 2013. As I said, they’ve got this net debt within their target. They are probably going to pay down more of their high-yield bond because that is in US dollars and the coupon, or the interest rate, is 8.5% per annum. So I suspect that are probably going to pay that down. And then they really want to be sure that, when they implement a dividend again, it’s going to be consistent and they don’t have to cut it again. I think they are being quite conservative there.

So I would estimate that in the first six months of this year they are going to try and generate as much cash flow, pay down that debt further and then look to implement possibly a dividend towards the end of the year.

HANNA ZIADY: We’ll have to wait and see. Let’s move on now to Hulamin, the aluminium products producer. I chatted a bit to Simon about them in the introduction. As he points out, it’s going to be tough for them, no matter which way you slice it. But they do have some plans up their sleeves to transport I believe compressed natural gas in an old petroleum pipeline from Durban.

WARREN DICK: Yes. Part of the problem with what we saw today in the results was that their growth margin, which is basically the cost of actually producing their product, roughly halved over the course of last year, and that’s not a good sign, that’s not a good development.

Part of the problem they cited for that margin coming down is the fact that they’ve got a very unstable source of energy which, as we understand it, is this LPG that they are basically trucking up from Port Elizabeth. So one of the things that they are looking at doing is using this old Portnet pipeline that was pushing petroleum up to Johannesburg and basically remodifying it so that they can actually use that CMG, as you’ve discussed. They can just literally just push it up the pipeline to their plant in Pietermaritzburg and have a much more stable source of energy, and I think also a cost source of energy, which is fundamental for Hulamin at this stage. It always relied on cheap electricity and now they are trying to find solutions to a lot of their costs of their power.

HANNA ZIADY: Thanks to Warren Dick. We don’t have time to discuss Petra Diamonds, another interesting stock headquartered actually on the Channel Island of Jersey, listed on the London Stock Exchange, but most of its diamond mines are here in South Africa. 

Post interview discussion

Before we say good night, Simon Brown, a quick one – Cashbuild issued an indication today that it expects earnings to go up by 34% or something.

SIMON BROWN: A really, really strong update. They are scoring for two things. They play in the bottom end of the market, cash market – those are a lot of people who are living in townships, who have a couple of hundred rand, want to do a small improvement. The higher end of the market – things are tough, so you can’t buy a new house, you can’t build granny a new flat, so you go and buy a tin of paint and you paint your interior lounge or something like that. So they are kind of winning. The squeeze at the top helps them and at the bottom end they are maintaining those customers. They’ve been a long-term really strong performer and they’ve been through tough times before and done incredibly well in them.

HANNA ZIADY: There we go, Cashbuild cashing in on DIY.

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