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Gold Fields cash beats AngloGold indecision

Both miners have made it a priority to reduce borrowings.

While AngloGold Ashanti Ltd. ponders options to cut debt by selling assets or paying back a $1.25 billion bond early, Gold Fields Ltd. is achieving results by generating cash.

Both miners have made it a priority to reduce borrowings, taken on partly during the decade-long bull run for gold prices that lasted until 2011. Bond spreads show that investors think Gold Fields has had more success this year than the world’s third-biggest producer.

The spread between Gold Fields’ $1 billion of bonds due July 2020 and AngloGold’s $1.25 billion of debt maturing the same month has narrowed 89 basis points in 2015.

“Our debt issues are largely behind us in terms of immediate concerns,” Gold Fields Chief Executive Officer Nick Holland said Feb. 12. “We don’t have any maturities now until the end of 2017. Our debt service is very comfortable for us, so I’m not concerned about debt at all at this stage.”

Gold Fields repaid $280 million of net debt in 2014, trimming its borrowings by 16 percent to $1.45 billion, which is 1.3 times earnings. Johannesburg-based AngloGold, which reports fourth-quarter results Feb. 23, had $3 billion of net debt, or 1.64 times earnings, at the end of the third quarter.

While AngloGold CEO Srinivasan Venkatakrishnan is keen to reduce borrowings, it’s a “medium term” goal, given the company’s ability to repay and its favorable debt position relative to global peers, he said in an interview on Feb. 11.

Record Slump

Gold-mining companies racked up about $30 billion in debt before prices reached their peak in 2011. The time of reckoning began two years later, when the industry took more than $26 billion of writedowns as bullion producers confronted a record 29 percent slump in prices.

To reduce debt, Venkatakrishnan is seeking to sell a major asset or find a partner in a deal that would raise cash and curb future capital expenditure.

“We will look at options around joint venturing or sale of one of the key production assets,” he said in the interview. He wouldn’t identify the mine that could be sold, saying his comments “could apply to a number of assets.”

AngloGold, which has 20 operations in 10 countries, last year sold its Navachab mine in Namibia to QKR Corp. for $110 million and is seeking a partner for a development project in Colombia.

Another option for AngloGold is redeeming its $1.25 billion bond due in July 2020 as early as next year. The bond, which yielded 6.71 percent on Feb. 13, has an 8.5 percent coupon and is the company’s most-expensive dollar debt.

Australia, Peru

“We’d like to use the opportunity” to call the bond after June next year, said Venkatakrishnan. “It’s not that we have to use it in June 2016, we can use it any time after that. That would help reduce the interest bill.”

Gold rose 0.6 percent to $1,229.07 an ounce by 3:40 p.m. on Feb. 13 in Johannesburg. That’s up 3.5 percent this year, paring to 35 percent the slump from the precious metal’s record high of $1,900 in Sept. 2011.

Both AngloGold and Gold Fields, a South African company with mines from Australia to Peru, have cut costs at their existing operations in the past year, as the industry adjusted to lower metal prices.

AngloGold reduced costs by 10 percent to $1,036 an ounce in the 12 months to Sept. 30 by cutting spending on exploration, its head office and by increasing efficiency. Gold Fields’ outlays were 12 percent lower at $1,053 an ounce in 2014 compared with the preceding year.

While the intention is to continue that progress, it may not be so easy to replicate, Holland said.

“With a lower gold price, further debt reduction of the magnitude we achieved in 2014 is going to be challenging but we certainly want to reduce further,” he said.

©2015 Bloomberg News

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