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Too early to assess AngloGold, Randgold agreement on Obuasi mine – Moody’s

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GoldMoody’s Investors Service says it is too early to assess the agreement by AngloGold Ashanti and Randgold Resources Ltd.

The two formed a joint venture to redevelop and operate the Obuasi mine in Ghana .

AngloGold Ashanti and Randgold Resources announced the agreement on Wednesday September 16, and Randgold Resources Limited will now fund and lead a development plan expected to be ready in about four months and hinged on a prior feasibility study of AngloGold, to rebuild the mine into a viable entity with an attractive cost and returns structure.

“If the development plan meets both parties’ investment criteria, and assuming all other conditions are satisfied, Randgold and AngloGold Ashanti will form a new joint venture company”, AngloGold Ashanti (AGA) said on Wednesday.

The formation of the joint venture is however contingent on some factors including both parties’ approval of the development plan, approval of the transaction by the South African Reserve Bank, consent of the lending banks under AngloGold’s existing financing agreements, procurement of environmental licenses and permits, and approval by the Ghanaian government on terms acceptable to all parties.

Moody’s says given that the redevelopment plan and a jointly-approved final investment decision will only be reached in February 2016, the agreement’s impact on AngloGold’s credit profile is too early to assess.

“Until this time, we see the agreement as credit neutral, as it requires no cash flow commitments or risk exposures for AGA that are different to before the agreement was concluded”, the rating agency said.

Moody’s said it will be better placed to form a view when a final decision is reached to redevelop the mine.

“Our analytical assessment will largely be focused on the redevelopment plan’s required capital expenditure and how AGA will fund its portion, time to production and production cost profile, and the execution risks.”

“A redevelopment plan with short payback, strong positioning on the global gold mining production cost curve and limited go wrong risk, presents significant upside for AGA if funded in a manner which continues to support its strong credit metrics and liquidity profile”, the rating agency said on Friday.

Moody’s said though Randgold will effectively not have to pay for its equity stake if the joint venture is established, there would be little value without redevelopment and optimization of the mine’s operational model design to increase profitability.

The rating agency noted that before entering limited operations phase at the end of 2014, Obuasi’s all-in sustaining cost per gold equivalent ounce was around $1,374 per ounce – far in excess of even the current gold price of about $1,118 per ounce.

Obuasi’s redevelopment and lower cost model is expected to reduce AngloGold Ashanti’s maintenance cost of about $17.5 million per quarter, and shift some of its mineral resource to reserves, extending the mine’s production life and adding to AGA’s long term production profile.

Moody’s also believes that AGA is well placed to benefit from demand that would follow the decline in global production levels once currently producing mines fully deplete their reserves.

By Emmanuel Odonkor

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