John Paulson, the billionaire whose hedge fund holds 6.6 percent of AngloGold (ANG) Ashanti Ltd., said he opposes the miner’s plan to raise $2.1 billion from investors while spinning off non-South African assets because it will destroy shareholder value.
“The concept is good but the execution, the way they’re doing it with this massive dilutive equity offering, it’s value-destructive,” Paulson, founder and majority owner of Paulson & Co., said by telephone yesterday. “I have absolutely no intention of voting this deal.”
AngloGold, the world’s third-biggest gold producer, said yesterday it will create a new company holding its foreign assets. It plans to retain 65 percent of the new company, which will trade in London, with the remaining equity distributed to shareholders. Johannesburg-based AngloGold said it hired UBS AG and Goldman Sachs Group Inc. to manage the rights offer.
Paulson & Co. has said the company could unlock value if it split into a high-growth international business and a mature gold producer in South Africa. The limited benefits of a partial spinoff are outweighed by the dilution of the equity offering, Paulson said in the interview.
AngloGold has shown “tremendous operational improvements this year, but the way this restructuring is being implemented, it’s destroying value because of dilution,” Paulson said in the interview.
AngloGold’s depository receipts fell 16 percent in New York, the biggest one-day drop since October 2008.
The spinoff “is intended to allow for a more appropriate valuation of each company through the strategy of separate listings,” David Haughton and Craig Harris, analysts at Bank of Montreal, wrote in a note yesterday. “Reduced corporate costs and focused management are key drivers, but raise the question of why that outcome cannot be achieved in the current structure.”
AngloGold will look to add more commodities to its portfolio of mining assets in South Africa and elsewhere if the spinoff proceeds, according to Chief Executive Officer Srinivasan Venkatakrishnan, who will remain in his position. It won’t buy gold assets outside South Africa.
The international gold company will continue to review operations and cut costs, said Charles Carter, who is executive vice president for strategy at AngloGold and is to become CEO of the international spinoff.
AngloGold, with 21 operations in 11 countries, said in July that it’s seeing its profits being eroded by costs from closing its Yatela mine in Mali and reorganizing operations in Ghana. The company is also trying to improve the quality of its portfolio after gold prices fell last year.
Gold is heading for its first quarterly loss this year and may fall to average $1,150 an ounce in 2015 from $1,260 this year, as the U.S. economy strengthens, Barclays Plc analysts Suki Cooper and Christopher Louney wrote in a Sept. 5 report. Bullion jumped 70 percent from December 2008 to June 2011 as the Federal Reserve bought debt and held borrowing costs at an all-time low to support the economy.
Gold companies also face competition from gold-backed exchange-traded products, or ETPs, as investors bet on bullion without the operational risks from mining.
Paulson started his foray into gold in early 2009, betting that prices would rise amid unprecedented monetary stimulus. His tone changed last year as the metal headed for the first annual decline since 2000, telling clients in November that he personally wouldn’t invest more money in his bullion fund.
In yesterday’s interview, Paulson said that while it’s difficult to predict inflation, after five years of monetary easing investors are “wise to have some gold.”
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