London, 16 September 2016 -- Moody's Investors Service ("Moody's") has today
changed the outlook to positive from stable on all ratings and affirmed
the Baa3 long-term issuer rating of AngloGold Ashanti Limited (AGA)
and Baa3 senior unsecured ratings of AngloGold Ashanti Holdings plc.
"The change in the outlook on the ratings to positive from stable reflects
further debt reduction on the back of a higher than expected gold price
during 2016 with materially strengthened credit metrics and liquidity
expected at year end," said Douglas Rowlings, a Moody's Assistant
Vice-President. "Despite a significant improvement in free
cash flow arising from gold price tailwinds, the company's
management remains conservative with a commitment to reducing net debt
levels and maintaining net debt to EBITDA of 1.5 times through
the cycle."
AGA's credit profile has been further supported by the lowering
of production costs and a continued focus by the company to keep them
low and avoid upward cost creep which often accompanies a benign gold
price environment. AGA implemented deep cost cuts post the steep
decline in the gold price in 2013 reducing all-in sustaining cost
to $911 per ounce for the first half ended 30 June 2016 from $1,551
per ounce at quarter end 31 December 2012. These considerations
and the addition of two low cost mines have transformed the business profile
into one that is better protected against gold price and operational downside
risk.
The company only intends to visit potentially resuming dividend payments
from 2017 which would be tied to free cash flow. Reserve development
will follow a similar prudent approach with strict capital discipline,
harnessing lower execution risk and capital expenditure brownfield opportunities
first before greenfield projects. AGA has various reserve development
options to shore up its long-term production profile and the ability
to do so with free cash flow generation and improved balance sheet headroom.
RATINGS RATIONALE
AGA's Baa3 ratings are currently supported by low gross debt/EBITDA of
2.07x as measured for the 12 months ended 30 June 2016.
Moody's expects deleveraging to 1.4x at year end.
This is attributed to the exclusion of lower second half 2015 EBITDA in
the calculation of 12 months rolling EBITDA at year end along with further
debt reduction which occurred after 30 June 2016.
On 1 August 2016, the $471 million outstanding on the company's
$1.25 billion 8.5% notes due 2020 was repaid.
This was AGA's highest interest rate debt and will result in an
interest reduction of $106 million per year based on the full amount
on the bond having been redeemed. Together with interest coverage,
liquidity has also improved with reduced debt maturity concentration in
2020 where the company has a $750 million bond falling due.
The Baa3 ratings factor AGA's scale as the third-largest gold producer
globally with a sizeable reserve base of 51.7 million ounces.
This translates into debt to reserves of $38 per gold ounce,
which compares favourably with similarly rated gold peers. The
ratings further capture the company's widespread geographic disbursement
of 17 mines in nine different countries across three continents.
A long dated debt maturity profile with pre-emptive liquidity and
mine configuration management provide shock absorption for unforeseen
risks. This also allows the company time to take measures to appropriately
align operations to challenging conditions that mines could face.
Furthermore the ratings consider AGA's ability to maintain stable operating
cash flow at a gold price of $1,100/oz. In addition
to active management interventions to reduce mine costs in US dollar terms,
AGA's currency basket of local operating costs once converted into
US dollars has also demonstrated a trend of moving in the opposite direction
to the gold price. This counters margin erosion, keeping
EBITDA generation largely stable when gold prices are volatile.
The ratings also factor in AGA's operating environment, which includes
event risk from negative developments in terms of higher taxes combined
with the high political risk and weak institutional strength to which
AGA is exposed in a number of the countries in which it operates.
This is counterbalanced by the proactively engaged management team's
record of successfully navigating challenges and its signing of mining
stability agreements with countries where AGA has mining operations.
The rating positioning also recognises that AGA is primarily a single
commodity producer, as well as the inherent volatility in the gold
price, given the fully unhedged position of the company.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook considers a continual strengthening of credit metrics
attributed to significant debt reductions over the past 12 months.
There is an expectation that by year end these will be commensurate with
a Baa2 rated gold mining company.
WHAT COULD MOVE THE RATING UP/DOWN
Upward rating pressure could occur if AGA's (1) gross debt/EBITDA is sustainably
less than 2.0x under Moody's forecast assumptions; (2) cash
flow from operations minus dividends/gross debt exceeds 30% on
a sustainable basis; (3) AGA is able to sustainably generate positive
free cash flow; and (4) liquidity is robust.
Upward movement of the rating will assess the ability for the company
to execute on long term capital projects while keeping gross debt/EBITDA
below 2x with liquidity headroom assuming Moody's medium gold price
range of $1,300-$1,100 per ounce.
Downward pressure on AGA's rating would likely arise due to heightened
operating risks in any of its operating assets that leads to a material
deterioration in operating performance being sustained. The rating
would also come under negative pressure if the company was unable to adjust
its cost base in light of lower gold prices such that (1) gross debt/EBITDA
exceeds 3x; (2) cash flow from operations minus dividends/gross debt
falls below 20%; or (3) its liquidity profile weakens materially.
The principal methodology used in these ratings was Global Mining Industry
published in August 2014. Please see the Ratings Methodologies
page on www.moodys.com for a copy of this methodology.
Headquartered in South Africa, AngloGold Ashanti Limited (AGA) is
a global gold mining company operating out of 19 locations in South Africa,
Continental Africa, South America and Australia. With production
of 3.8 million ounces of gold from continuing operations and revenues
of $4.0 billion for the last twelve months ended 30 June
2016, AGA ranks as the world's third largest gold producer.
In South Africa (28% of production as of LTM 30 June 2016),
AGA has four deep level operations and surface operations, while
most of its operations in other countries are open pit. The company
is listed on the New York, Johannesburg, Ghanaian and Australian
stock exchanges.
The Local Market analyst for this rating is Douglas Rowlings, 971-4-237-9543.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
