The chief executive of AngloGold Ashanti said on Friday that now is a great time to buy back its money-losing gold hedges, and the miner will consider all merger and acquisitions options, including a takeover deal by a rival.
CEO Mark Cutifani told Reuters in an interview that the price of gold will likely trade above $1,000 an ounce by the end of the year on strong market fundamentals.
South Africa's AngloGold, the world's No. 3 gold producer, which posted a second-quarter loss on Thursday, would be open to considering any value-accretive acquisitions, Cutifani said.
On the other hand, Cutifani said that AngloGold shares were "terribly undervalued" and trading at a significant discount to the rest of market.
When asked if AngloGold would consider a takeover deal by another company, Cutifani said: "Of course, you have to consider. We have to do the right thing by our shareholders."
"And if at the end of the day, the opposition starts to wake up ... and somebody wants a piece of the action, of course we have to consider it," Cutifani said.
Cutifani also said the company probably would hold its current dividend policy for the remainder of the year, and will look at its cash flow and reset its dividend distribution if needed.
"We are committed to paying dividends," he said.
On Thursday, AngloGold surprised the market with an interim dividend of 6.7 cents (50 South African cents) per share.
HEDGE BUYBACK, RIGHTS ISSUED
AngloGold, formed in 2004 after AngloGold Ltd merged with Ashanti Goldfields, posted a worse-than-expected loss for the second quarter after trimming forward sales.
AngloGold has one of the biggest hedgebooks among it peers globally. Steadily rising bullion has turned gold producers away from hedging in favor of direct exposure to spot prices.
AngloGold said it expected to cut its hedgebook a further 0.8 million ounces to 6.1 million ounces by December.
"I think it's a great time (to buy back hedges). The fundamentals are very strong for gold and there is a strong possibility gold will break through the $1,000 mark," Cutifani said.
In addition, AngloGold in mid-July raised $1.7 billion through a rights issue to help cut its forward sales.
Cutifani said the company will use $1.2 billion from the rights issue to replace cash flow related to forward contracts settlement; $300 million to pay back short-term debts; and the remaining $200 million for new projects.
DWINDLING INDUSTRY OUTPUT
Cutifani, who took the helm of AngloGold in October 2007 after Bobby Godsell retired, said a lack of cash and capital among some miners could pressure near-term gold production.
"I still think we have an industry that's under stress. We have seen declining production in the last six years. We will probably see production decline in the next three to five years continuing because there hasn't been enough investment," Cutifani said.
AngloGold expects its gold output in the third quarter to tick up to 1.27 million ounces from 1.25 million ounces in the second quarter. It expects full-year production of between 4.9 and 5.1 million ounces.
Looking forward, Cutifani said the price of gold had an "absolutely" good chance to trade above $1,000 an ounce at year end, and the bullish outlook explained why AngloGold decided to buy back its hedgebook.