AngloGold Ashanti: Moving to the US does not lead to a rapid increase in ratings

The South African gold rush began in the late 19th century. Another has begun, this time in New York City. Firms outside America now seek the deep veins of capital through the New York Stock Exchange. AngloGold Ashanti on Friday announced plans to move its primary listing to New York from Johannesburg. As with some UK companies leaving their home market, he sees the potential for a higher valuation over time.

A listing in London was a possibility. As the name suggests, AngloGold has long-standing links with the UK through its subsidiary company. In fact, the holding company is re-domiciling in the United Kingdom. Moving it to the US would pose the threat of a withholding tax on dividends. The South African miner also snubbed London because two-thirds of his stock trading already takes place in the US via a depositary receipt.

But the achievement of a higher earnings multiple would not happen immediately. A year ago, AngloGold and its local peer Goldfields were trading just over five times their forward ebitda, 40% below that of North America’s largest miners Barrick and Newmont. But since then those four multiples have converged about seven times.

A recent bull run in the price of gold favors AngloGold and Goldfields. Both have the highest commodity three-year fee price sensitivity among the 17 major gold miners Raj Ray reviewed at BMO Capital Markets. AngloGold says the discount will return once gold prices moderate.

Inclusion in the index is also important. AngloGold is a major part of the popular US ETF Van Eyck Gold. It’s not clear how many more passive inflows it would receive. Had he chosen London, its market value of nearly £9bn would have meant inclusion in the FTSE 100, alongside miners Fresnillo and Endeavor Mining. Finally there is the cost, estimated at 5% of the market capitalization: today about 560 million dollars.

This could have bought a new greenfield gold mining project, thinks BMO. Something for shareholders to think about — three-quarters must approve — when they vote on its restructuring.