MINING FINANCE / INVESTMENT

Anglo American's new surprise

Anglo American launches a $ 1.5bn convertible, in yet another bid to shore up its balance sheet.

Author: Barry Sergeant
Posted: Thursday , 16 Apr 2009

JOHANNESBURG - 

 

Transnational mining group Anglo American on Thursday launched a USD 1.5bn convertible, a hybrid debt-equity instrument, adding again to its heavy 2009 capital raising exercises. In a speech at Anglo American's AGM held in London on Wednesday, CEO Cynthia Carroll said: "In terms of liquidity, you will also have seen that just two weeks ago we launched a highly successful USD 2bn bond, for which there was extremely strong demand from investors in both North America and Europe".  

While a number of media reports have the two issues as one, the USD 2bn corporate bond and USD 1.5bn convertible are two completely separate instruments. Given certain conditions, the convertibles may at a future date see creditors convert asset debt into equity - ordinary shares - in Anglo American. In the meantime, the convertibles carry interest, like a straight bond. 

Carroll also announced that Anglo American had recently secured a USD 1bn loan from the Brazilian development bank, BNDES, for the Minas-Rio iron ore project in Brazil. Earlier this year, Anglo American raised USD 434m and USD 1.3bn selling the final two legacy tranches of stock it held in AngloGold Ashanti.  

If the USD 1.5bn convertibles are considered as debt, Anglo American has thus upped its debt this year by USD 4.5bn. At the end of 2008, Anglo American's net debt (including cash) computed at USD 11.00bn, leaving current debt (ignoring internal group cash flows, which are unknown) at USD 15.5bn.  

Deducting the cash raised from selling the AngloGold Ashanti tranches, this would leave Anglo American's current net debt at about USD 13.8bn, but now it has another USD 4.5bn in cash from the bonds, convertible and BNDES, pushing net debt below USD 10bn, still classifying Anglo American as the world's No 2 or 3 most-indebted mining entity. At the end of 2008 Rio Tinto's net debt computed at USD 38.17bn. These numbers can be compared with BHP Billiton, the world's biggest diversified resources group, which ended 2008 with net debt of just USD 4.20bn.  

Investors are extracting top dollar returns from capital raisings by Anglo American and Rio Tinto. Where BHP Billiton's recently launched five year USD 1.5bn bonds carry an annual coupon of 5.5%; Rio Tinto's five year USD 2bn bonds are at 8.95%, and Anglo American's five year USD 1.25bn bonds are at 9.375%. BHP Billiton's three year EUR 1.25bn bonds carry a coupon of 4.75%.  

Anglo American's convertibles were priced at 4.0%; this can be compared to the 5.25% on the recent Alcoa convertibles, and 3.00% on recent Newmont convertibles. Alcoa carries fairly serious debt, like its big Russian counterpart in the aluminium sector Rusal; Newmont ranks as a leading Tier I global gold digger. Demand for Anglo American's convertible was fierce, at about USD 10bn; the issue may yet be increased to USD 1.7bn. This year's combined raisings by Anglo American leave the group at peace with no further refinancing requirements until 2012. 

In the past few months, mining companies have raised, or are raising, USD 56bn, completely outside any banking system, using various techniques, and including rights issues and direct placements. The single biggest package - yet to be completed - involves Rio Tinto wanting to sell various equity stakes in some of its most prized assets to smaller rival Chinalco for USD 12.3bn; Rio Tinto also wants to sell convertibles worth USD 7.2bn, also to Chinalco.  

Rio Tinto has in 2009 sold some fine assets, separately to the proposed Chinalco deal: Jacobs Ranch for USD 761m; potash assets for USD 850m, and certain iron ore assets for USD 750m. Most companies of any kind will go a thousand miles before contemplating big rights issues when stock prices are under strain. So far, the global mining sector has seen only one company prepared to take such a massively dilutive route. That was in the form of diversified miner Xstrata, which recently raised the equivalent of around USD 6.2bn. 

RECENT SELECTED MINING BONDS, CONVERTIBLES & RELATED
	Stock	Value	Instrument	Raising
	price	USD bn		USD m
Anglo American	GBP 13.70	27.488	Convertibles	1500.00
Rio Tinto	GBP 24.33	52.491	Bonds	3500.00
Anglo American	GBP 13.70	27.488	Bonds	2000.00
Gold Wheaton	CAD 0.22	0.257	Notes	95.48
BHP Billiton	GBP 14.06	126.826	Bonds	2963.70
Aquarius	GBP 2.63	1.467	Convertibles	73.19
Barrick	USD 29.80	26.018	Bonds	750.00
BHP Billiton	GBP 14.06	126.826	Bonds	3250.00
Alcoa	USD 9.05	8.804	Convertibles	500.00
Rio Tinto	GBP 24.33	52.491	Convertibles	7200.00
Newmont	USD 42.30	20.241	Convertibles	517.50
De Beers (8)	N/A	N/A	S/h loans	500.00
NOTE: not all raisings shown are closed/finalised.
Source: Market & company information, compiled by Barry Sergeant