By Ed Stoddard and Silvia Antonioli
JOHANNESBURG/LONDON (Reuters) - Africa's biggest bullion producer AngloGold Ashanti (J:ANGJ) has joined the wave of large miners shaking up their businesses by announcing a $2.1 billion (1.30 billion pounds) rights issue and plans to spin off its non-South African assets in a new British-based company.
The demerger announced on Wednesday mirrors moves by other miners seeking to reduce exposure to South Africa, the vast resources of which are accompanied by the risk of a volatile labour market, policy uncertainty, dizzying shaft depths and soaring costs.
AngloGold, hit by falling metal prices in recent years, said that separate listings would allow independent management teams to execute "distinct strategies for each entity to compete as effectively as possible".
It plans to distribute to shareholders 35 percent of the shares in the new company, seeking a London listing by the middle of next year, and initially retain the remaining 65 percent stake.
The company also said it aims to raise $2.1 billion through a rights issue before the demerger, with some of the proceeds earmarked for reducing what Chief Executive Srinivasan Venkatakrishnan described as its "unsustainably high" debt of between $3.1 billion and $3.2 billion.
The stock market, however, reacted negatively, with AngloGold's Johannesburg-listed shares dropping nearly 14 percent by 1439 GMT (03:39 BST).
LOST SAFETY NET
"Investors are worried about what they will be left with in the end, with no hedge from the global operations," said Abri du Plessis of Gryphon Asset Management, which does not hold shares in AngloGold. "People see the international operations as being much more diversified and much more stable."
AngloGold's plan follows the demerger announced last month by BHP Billiton (AX:BHP) (L:BLT), the world's largest mining company, and the move by Gold Fields (J:GFIJ) last year to spin off labour-intensive South African operations into a new company, Sibanye Gold (J:SGLJ).
Since Sibanye listed in February last year, its share price has climbed by 92 percent, against a 36 percent fall for Gold Fields shares.
Gold mining companies have been particularly hard hit in recent years, with the metal's price
"If we are to remain competent and drive value for our shareholders in the long term, we have to restructure the business," said Venkatakrishnan, who goes by the name of Venkat.
After the restructuring, which requires shareholder approval, AngloGold would be debt-free, while the new company housing international assets from elsewhere in Africa, Australia and the Americas would have debt of between $1 billion and $1.2 billion, the company said.
AngloGold said the resulting financial freedom will allow it to pursue expansion in other commodities.
Charles Carter, currently AngloGold's executive vice president for strategy and business, has been lined up as CEO of the new company.
Carter said in a conference call that he expected the new entity, the operations of which currently account for 65-70 percent of AngloGold's earnings, is expected to join the blue-chip FTSE 100 index and will be valued at about $6-7 billion.
Investec analysts, however, said they expect the new company to be valued at about 3 billion pounds ($4.83 billion).
AngloGold's market capitalisation before Wednesday's announcement was 68.77 billion rand (3.90 billion pounds), according to Thomson Reuters data.
GEOLOGY, NOT GEOGRAPHY
AngloGold's South African operations, which accounted for about 30 percent of its total gold production of almost 1.1 million ounces in the quarter June 30, highlight many of the challenges facing the country's mining industry.
"It is deep underground mining, it requires a lot of focus, especially when it comes to things like safety and technology," Venkat said. "Those are all factors where you need a dedicated team ... It's geology, not geography."
The company's Mponeng mine west of Johannesburg is the deepest in the world, at 4kms (2-1/2 miles), raining costs sharply at a time when bullion's spot price
Its South African mines were also hit by a wave of violent strikes that swept the industry in late 2012, setting the stage for a five-month strike in the platinum sector this year, which has further unnerved investors in the country.
Venkat will remain chief executive of AngloGold and will be joined by Christine Ramon, former CFO at petrochemicals giant Sasol (J:SOLJ) and one of South Africa's most high-profile female executives, as chief financial officer.
(Addditional reporting by Helen Nyambura-Mwaura, Peroshni Govender, Clara Denina and David Dolan; Editing by David Goodman)