After the Bell: AngloGold’s sad farewell to South Africa

What does corporate nationalism mean? I’ve been reflecting on this rather odd and contradictory idea whenever I read about AngloGold Ashanti.

The JSE announced on Tuesday that AngloGold will remain on the JSE with a secondary listing after the company announced a few months ago it had decided to shift its primary listing to the New York Stock Exchange while keeping an office in SA.

From a logistical and financial point of view, the decision is depressing – but more or less unimpeachable.

Although gold is having a moment at the moment, gold mining in SA has been on the decline for decades for the very simple reason that the gold reef has got deeper and deeper, which obviously increases costs.

AngloGold sold its last South African gold assets years ago, after expanding all over the world. Two-thirds of its stock is now traded in New York.

Furthermore, the three largest gold mining companies by market capitalisation – Newmont, Barrick and Franco-Nevada – are valued at between $26-billion and $31-billion. AngloGold’s market cap is $7.7-billion, but it trades a price-earnings multiple somewhere between 20% and 40% lower than the big three. 

The comparison with Franco Nevada is most eye-popping: the Canadian company’s turnover is a quarter of AngloGold’s, though the SA company, sorry, the US company, trades at a third of the value.

So, you know, good for them. May they go forward and prosper. And yet. And yet.

I was recently reading parts of Anthony Hocking’s book, Oppenheimer and Son, published years ago, and it struck me just how wild and exciting the early days of gold mining were in South Africa. Gold, as everybody knows, was the seminal formative event of the City of Johannesburg.

And yet, it wasn’t just the gold below Johannesburg that made SA a great mining power. Hocking points out it was the extraordinary German geologist Hans Merensky who had a theory that SA’s gold deposits were the consequence of a huge inland lake, and that millennia of alluvial weathering from surrounding mountains gradually formed the gold seams.

Merensky is better known for his discovery of the Bushveld igneous complex, the platinum reef which now bears his name. But for AngloGold, it was his “inland lake” idea that was to have more influence. If the lake idea was correct, there was gold to be found, crucially in minable concentrations, way outside Johannesburg.

Eventually, some digging was done miles from Johannesburg on a farm in the Free State. In 1946, it fell to Ernest Oppenheimer to announce that a borehole drilled by Anglo and another consortium on the border of the farm Geduld in the Free State had “intersected a Basal Reef at 3,922 feet with a true width of 18.4 inches, assaying 1,252 dwt per ton, which is equivalent to 23,037 inch/dwt”. (Dwt is a description of the unit pennyweight used to measure precious metals.)

It will take a real miner to understand the enormous consequence and power of that seemingly mundane announcement. It was a bombshell that nobody believed at the time.

The notional “payable limit” then for mines on the rand reef was 150 inch-dwt. Most of the reef mines were yielding 450 dwt. And this was more than 23,000! Hocking records that some in Anglo thought the results had been salted.

In any event, once the war was over, South Africa saw a brand new set of gold mines and a whole string of new towns, of which Welkom eventually became the centre. And it further cemented what would eventually become AngloGold as one of the great gold mining companies of its age.

One doesn’t like to overplay this because there are also politics to consider, but the fact is that the Free State goldfields provided a lift for the people of the Free State, some of the poorest in the nation at the time.

Personally, I think it’s easy to explain away the decline of the SA gold industry as a consequence of geology. Of course, that’s part of it, but there are other aspects too. There are still minerals to be found in SA and mines to be mined.

SA has a geology like very few other countries in the world.

The Department of Mineral Resources and Energy announced last year that it has reduced the number of outstanding mining applications from around 5,000 to about 2,500.

But that still means there are, at the very least, hundreds of potential mines that are being held up because of bureaucratic inefficiency, just like in so many other aspects of SA’s administration.

You don’t get promoted in the government for making mines happen; you get promoted for making miners bend their knees. And then there is Eskom, and the unions, and the endless Mining Charter debate. And. And. And.

And so the company that was listed on the JSE in August 1944 – that made so much happen in the second half of the 20th century – has set its sights elsewhere. It’s sad. DM