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IT'S not surprising that Mvelaphanda Resources (Mvela) and Anglo American are both sellers of gold shares.
Earlier in February Anglo took its stake in AngloGold Ashanti down to 11.88% selling the stock at about $28/share. René Medori, Anglo's chief investment officer, observed at the group's recent annual results announcement that it had hoped to sell AngloGold shares at an average of $30/share. Given AngloGold Ashanti is now trading around $32.78/share, one wonders if more sales are imminent.
Friday, February 20 proved an interesting day for anyone or thing holding a gold share. That's because the gold price temporarily surged through $1 000 per ounce, a magical level for gold bugs because - I can't explain it - achieving $1 000/oz means $2 000/oz must also be possible. Yet for the less committed, a gold price at these levels could be viewed as toppish.
The Yellow Book, a gold industry research note published by VM Group last week, said $950/oz was likely to be the average for 2009. Martin Murenbeeld, a US economist who is uncommonly accurate in his gold price forecasts, reckoned $995/oz was possible as a year-end average.
But not many are expecting gold to far exceed $1 000/oz. All I'm saying is that February seems to be a good time to be selling gold shares, particularly as the VM Group believes 2009 will be "a year of severe uncertainty".
Mvela has made it plain it intends to sell its 50 million of Gold Fields' shares, about 7% of the shares in issue, as part of a grand plan that will ultimately result in its disappearance.
Unfortunately for Mvela, the Gold Fields shares don't vest with the group until March 17. Accepting this is a year of "severe uncertainty", that means the gold price may well have retreated between now and then, the window of opportunity lost. In addition, Mvela also has promised it would sell its Gold Fields shares in "an orderly fashion", aka no fire-sales.
Still, that doesn't preclude a single accelerated book-build especially if a reasonable average price can be agreed for the Gold Fields shares. At the end of the day, Mvela wants to divest of its stake in a way that doesn't harm the price. A single book-build wouldn't necessarily compromise that goal.
According to James Wellsted, Mvela's spokesperson, the other option is to "dribble the shares into the market", but he uttered that with such a lack of conviction, it was almost like saying it won't happen. For me, I'd do the book-build and as soon as possible. As Wellsted observes, 50 million shares is only about a week-and-a-half of Gold Fields' trade.
A sea of debt
Apart from the well-known fact that gold isn't a core strategic holding for Anglo nor Mvela, it's also one of the few asset classes that can be sold at a decent price. Given that both Mvela and Anglo are also adrift in a sea of debt, that's useful.
In the case of Anglo American, total debt is $11bn ($13bn including De Beers, in which Anglo has a 45% stake). Although asset sales are not yet on the agenda, one hesitates to be firm about it.
In an interview with Miningmx managing editor Allan Seccombe, Anglo American CEO Cynthia Carroll gave a one-word "no" when asked if the company considered selling businesses in the current environment.
We journalists know a thing or two about the old tight-lipped response, the one-word rebut. Company executives think that's how to put a matter to bed, but all the journalists are thinking is: "That was a bit defensive, perhaps it means yes".
And defensive Carroll certainly was; strident almost, particularly in her presentation of Anglo's year-end results on Friday in which, incidentally, she also announced that the dividend would be suspended while 10 000 jobs (mostly contractors) would be cut.
The market is tough, no doubt, and to make matters worse, Anglo has its own Alcan, the aluminium asset Rio Tinto bought for $40bn, the cost of which is now forcing Rio to sell off some of its best assets. In the case of Anglo, it's two Brazilian iron ore projects called Minas-Rio and Amapá owned by MMX, which are costing $7.3bn to own.
Even as recently as January, Carroll said the MMX mines were a cracking investment because the iron ore market was one of the few that remained sound. That was until iron ore contract talks were suspended, no price agreed and with Kumba Iron Ore, an Anglo subsidiary, saying iron ore prices could fall 10% or more.
It isn't looking good and one rated analyst said he was horrified to hear Carroll on Friday describe the MMX assets as the best in the world. "They're not," he said.
"Carroll should have admitted these investments were a mistake just as BHP Billiton owned up to Ravensthorpe (nickel mine in Australia), and then suspended it. This type of comment lacks integrity," he said.
That brings me on to another debating topic circulating in the none-too-confidential corporate world of Johannesburg. There are major questions about Carroll's leadership that 2009 will certainly test further.
The rumour is that Carroll is an isolated figure having, wags say, lost the people game. That's odd given her subtlety in ironing out Anglo's relations with the South African government two years ago.
- Fin24.com
