Page 9 - AMANGO 2017 CASE STUDY 2

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The other half of the Board, led by the Group CEO and CFO who were against the dividend freeze

policy from inception, believe that although the share price had recovered from its 2016 collapse, the
group was still not correctly valued by the markets, principally because of the policy to suspend
dividends in 2016, and alter it from the constant growth of at least 6% that it had pursued to then, to
the pay-out ratio it had adopted. They are therefore, arguing for a return to the old policy, to help
deliver better shareholder value. With improving commodity prices, they argued, should other mining
giants continue growing their dividends, AMANGO’s share price could remain undervalued by as
much as 38%. As the meeting concluded, the Board chair summarized that, whilst the full board was

unanimous in growing shareholder value, there was an even split as to the best dividend policy to
achieve that!

In the time being, the Strategic Joint Venture Decision in Canada has now been resolved, it promises to
be far more lucrative than initially thought; and AMANGO is looking to invest US$1,600m into Quinta.

Until it restores its rating to investment grade and resolves the dividend question, it is unlikely to be able
to raise capital via additional debt or equity; so, it plans to raise the finance from a combination of
US$110million sale (to Sibanye Gold) of its equity investment in one of its wholly-owned mining
operations in South Africa, and the balance US$1490m from its operating cash flows -in the coming two
years. As a result, AMANGO’s current capital structure of US$772 million $0.25 equity shares and
‘medium and long-term borrowings’ of U$11,363m is not expected to change in the foreseeable future.

Although its target of bringing down its long-term debt from US$16,318m to US$10,000m had not been
met, the Board felt the resurgence in commodity prices and the resulting share price bounce had
significantly improved its market value gearing; so, it was comfortable to maintain its book value gearing
at the current levels for the next 2 years.

The CharterQuest Institute has compiled the following pertinent data to assist the Board:

1. Expected income and cash flow commitments to end of 2018 -before investment in Canada:
1.1 Sales revenue was and is still forecast to grow by 9%, of which 25% constitutes EBITDA;

1.2 0.5% of sales revenue is always set aside as investment in working capital; and
1.3 The group continues to focus on capital discipline and stay-in-business capital efficiency, while
maintaining the operational integrity of all assets. A sustainable level of capital expenditure for the
current portfolio of assets, excluding growth projects, is approximately US$2,500m per year.
1.4 AMANGO’s share of net income/(loss) from associates and JVs is expected to rise to US$2514 if
the investment into Quinta is made; and
1.5 The total dividends paid from end of 2018 will be the remaining cash flows after the US$1,600m

investment in Canada is made, growing by 6% into the foreseeable future.

Synergy and Corporate Acquisition

The CFO Case Study Competition Pack (Extended scenario)
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