(October 2012) If you actively follow the precious metals market, you are likely aware of the workers strikes hitting the mining industry. In particular, AngloGold Ashanti, the South African headquartered gold mining giant has had operations affected by the strike, as roughly 35,000 of its workers are participating. On Wednesday, the strike finally reached the point that S&P decided to take action, placing AngloGold Ashanti debt on “CreditWatch with negative implications.”
In the press release, S&P noted the following:
After reading those highlights from S&P’s press release, it probably doesn’t leave a lot of readers feeling all that great about the company. But keep in mind that the major reason for the placement on “CreditWatch with negative implications” is the strike in South Africa. If you believe the issue will ultimately be resolved, there may be an opportunity in AngloGold Ashanti’s stock, which has been lagging its competitors since the company halted its South African gold mining operations on September 25, 2012.
On the other hand, if you feel more comfortable further up the capital structure, you might consider AngloGold Ashanti Holdings Finance’s (a principal subsidiary of the parent company) senior unsecured notes. Even if you prefer to wait until S&P makes a final determination about whether to downgrade AngloGold Ashanti’s debt to junk, keep these three bonds on your radar screen:
Another idea besides solely purchasing the bonds is to pair a bond position with a position in physical platinum. South Africa is a major producer of platinum. In 2011, the country produced 72.4% of the world’s platinum and held 95.5% of the world’s reserves of platinum-group metals. If there will be an ongoing, ever-present threat of mining disruptions in South Africa, that should be supportive to the price of physical platinum. While this would not be a perfectly neutral pairs trade, it is certainly something to consider.
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