Approximately $1.0 Billion of Debt Securities Affected.
London, 15 March 2012 -- Moody's Investors Service has today upgraded the issuer rating of
AngloGold Ashanti Limited (AGA) to Baa2 from Baa3. Concurrently,
Moody's has upgraded the senior unsecured debt obligations of AGA's
guaranteed subsidiary, AngloGold Ashanti Holding plc, to Baa2.
The outlook on the ratings is stable.
RATINGS RATIONALE
"AGA's upgrade reflects the company's significantly
strengthened credit metrics, following the elimination of its gold
hedge book and continued implementation of its Project ONE business improvement
initiative, which continues to result in substantial cost reductions
across its operating sites," says Soummo Mukherjee,
a Moody's Vice President -- Senior Analyst and lead
analyst for AGA . "The upgrade also reflects AGA's
successful turnaround of key operating assets such as Geita in Tanzania
and Obuasi in Ghana, which are now yielding sustainably higher operating
margins and generating sufficient cash enabling AGA to significantly reduce
its debt," adds Mr. Mukherjee.
Moody's expects that AGA's credit metrics will remain strong
even if gold prices correct substantially from present levels.
However, in a lower gold price environment Moody's would expect
AGA to scale back dividends and expansionary investment plans in order
to still comfortably fund cash outflows from its internal cash generation
supporting the maintenance of positive free cash flow.
--OPERATIONAL SCALE AND GEOGRAPHICAL DIVERSITY TEMPERED
BY WEAKER OPERATING MARGINS THAN SOME INTERNATIONAL PEERS
The Baa2 rating is supported by AGA's position as the third-largest
gold producer with a sizeable reserve base and good geographic diversity
with its 20 mines in 10 different countries and four separate continents.
Nevertheless, AGA's operating margins are generally weaker
than many of its international peers due to the higher costs associated
with deep-level mining at many of its sites. Although 39%
of its production is currently derived from South Africa, the company's
growth and expansion plans in other geographies will reduction of this
concentration to around 30% by 2014.
The rating also factors in AGA's operating environment, which
includes the event risk from negative development in terms of higher taxes
combined with the high political risk and weak institutional strength
that AGA faces in a number of countries in which it operates. The
rating positioning recognises that AGA is primarily a single commodity
producer, as well as (i) the inherent volatility in the gold price,
given the fully unhedged position of the company; and (ii) the risks
arising from a potential reversal in the recent rally of the gold price,
possibly in conjunction with the global economic environment becoming
less volatile.
--LOWER-THAN-ANTICIPATED ELECTRICITY PRICE
RISE CREDIT POSITIVE FOR SOUTH AFRICAN OPERATIONS
Moody's also notes that the mining industry has been subject to
rising operating costs in recent years, as ore reserves have become
more expensive to recover while price increases for most commonly used
consumables have been running well ahead of general inflation.
The group's significant presence in South Africa has left it exposed to
heightened energy and wage inflationary pressures. However,
Moody's notes that the recent announcement by NERSA, South
Africa's electricity industry regulator, that electricity
tariff increases for the next 12 months would average 16% from
1 April 2012, rather than the originally approved 25.9%,
is credit positive for the South African mining operations. Furthermore,
Moody's believes that AGA's business improvement initiative, Project
ONE, should continue to offset some of the higher cost pressures
that it is facing.
-- STABLE OUTLOOK UNDERPINNED BY ABILITY TO MAINTAIN POSITIVE
CASH FLOWS
The stable outlook reflects Moody's expectations that AGA will be
able to fund maintenance capital expenditure (i.e.,
the level of investment required to maintain production at current levels)
and a moderate dividend payout from internally generated cash flows.
The stable outlook further assumes that AGA's management will maintain
a strong liquidity profile, healthy cash flow generation and conservative
financial policies by prudently managing its investment decisions.
--WHAT COULD CHANGE THE RATING UP/DOWN
Given the recent upgrade to Baa2, upward pressure on AGA's
rating will remain limited in the short to medium term. However,
longer-term positive pressure could arise through evidence of further
geographic, operational and commodity diversification that leads
to a sustainable improvement in AGA's business risk profile.
Downward pressure on AGA's rating and/or outlook would likely arise
due to heightened operating risk in any of its operating assets that lead
to material deterioration in operating performance. Inability to
adjust its cost base in light of lower gold prices so that total debt/EBITDA
exceeds 2.0x, Cash Flow from Operations minus dividends/debt
falls below 20%, free cash flow is persistently negative
or liquidity contracts substantially would also weigh negatively on the
rating or outlook.
The principal methodology used in rating AGA was the Global Mining Industry
Methodology published in May 2009. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
The Local Market analyst for this rating is Dion Bate, 27-11-217-5472.
Headquartered in Johannesburg (South Africa), AGA is a global gold
mining company with sales of USD6.9 billion and an annual production
of 4.3 Moz of gold in 2011.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
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Soummo Mukherjee
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Services Limited, Dubai Branch
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David G. Staples
MD - Corporate Finance
Corporate Finance Group
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Moody's upgrades AngloGold Ashanti to Baa2 from Baa3; stable outlook
