Paulson & Co Buys Anglo American

[Skip to the end]

Might be the idea I’ve had for a while- if you own a gold mine, you incur expenses mining and don’t get taxable income until the gold is sold, and often you can sell it far forward at more than the carry and then roll the forwards as well to further defer taxable income?

Paulson & Co Buys Anglo American AngloGold Stake

by Jeffrey Sparshott

Mar 17 (Dow Jones) — Hedge-fund firm Paulson & Co. has paid $1.28 billion to buy Anglo American PLC’s (AAUK) remaining stake in South African miner AngloGold Ashanti Ltd. (AU), as the firm run by John Paulson beefs up its bet on gold.

Paulson, a merger-focused investor who became a hedge fund legend for making billions of dollars betting against subprime mortgages in 2007, has been piling up his gold holdings recently with stakes in several miners, including more than $450 million worth of stock in Kinross Gold Corp. (KGC), according to securities filings. He even introduced to investors a new share class pegged on the price of gold.

It’s unclear why Paulson has been upping his bet on gold, but he and several other hedge-fund managers have been getting more into gold recently, including David Einhorn of Greenlight Capital. A bet on gold is typically a flight to safety against an expected drop in the value of currencies.

Many of the hedge funds that have been buying stakes in mining companies, as well as physical bars of gold, have been doing so in anticipation of nations defaulting on their debt, which could lead to higher gold prices. Inflation and even deflation can also lead to rising gold prices.

Paulson spokesman Armel Leslie said: “We believe AngloGold Ashanti is one of the best managed and most undervalued of the major global gold mining companies. We look forward to the implementation of their global expansion strategy.”

Anglo American’s long-standing policy has been to sell down its stake in the South African gold miner. But the disposal of a large block of shares was an “opportunistic” sale made after advisers at Deutsche Bank brought Anglo American in contact with the U.S. hedge fund, people with knowledge of the transaction said.

As recently as Feb. 19 Anglo American said in a regulatory filing that it “intends to remain a significant shareholder in AngloGold Ashanti in the medium term.”

Uncertainty about when Anglo American would sell down its stake weighed on AngloGold’s shares.

“The Anglo American share overhang, with its depressing effect on our share price, has now gone and I’m excited about the opportunities that lie ahead for us,” AngloGold Chief Executive Mark Cutifani said.

Cutifani welcomed Paulson as one of AngloGold’s biggest shareholders. The fund bought 39.91 million shares from Anglo American, or 11.3% of outstanding shares.

“We’re extremely pleased that someone with John Paulson’s track record and reputation has chosen AngloGold Ashanti as one of his investments through which to increase his exposure to the gold market,” Cutifani said.

Anglo American said it would use the funds for general corporate purposes.

The miner’s net debt – about $11 billion at the end of 2008 – has weighed on its share price.

Anglo American now holds no shares in the gold miner, the company said.

Paulson paid $32 per share.

Anglo American has reduced its stake in AngloGold several times since announcing it would relinquish its majority holding in 2006. Anglo held 42% of AngloGold in April 2006, 17.3% as of Oct. 9, 2007 and 13.3% as of Feb. 5, and 11.88% as of Feb. 18, according to filings with the U.S. Securities and Exchange Commission.