Ashanti plans friendly takeover of Samax Gold

Though no formal offer has been made, Ashanti Goldfields (ASL-N) says it intends to acquire London-based Samax Gold (SMX-T) as a means of augmenting its existing holdings in Tanzania.

Ashanti plans to offer $7.94 (US$5.08) per share in cash, or US$7.10 in Ashanti stock, for all the shares of Samax.

Samax shareholders choosing the stock option will be offered an equity security, to be issued by a subsidiary of Ashanti, convertible into Ashanti ordinary shares valued at US$7.10 (the average closing price for the last 20 days ending Aug. 28).

Ashanti already has Samax’s largest shareholder, Adryx Mining & Metals, on side. Adryx pledged its 43% of the outstanding shares of Samax to Ashanti in an irrevocable agreement to accept the offer.

Ashanti’s intended takeover carries with it several pre-conditions, including the normal due diligence and the approval of regulators and the boards of both Ashanti and Samax. Ashanti’s offer will also be subject to a fairness opinion from Samax’s financial advisors.

Assuming these and other pre-conditions are met, Ashanti expects to make a formal proposal to Samax shareholders by mid-September, with the close expected as soon as mid-October.

Michael Martineau, Samax’s chief executive officer, says a deal with Ashanti would “offer an opportunity for our shareholders to recognize the company’s record of exploration in Africa.”

The deal would be valued at US$189 million in Ashanti stock, and would consolidate Samax’s Kukuluma licences in northern Tanzania with Ashanti’s Geita property, which adjoins them. Samax previously announced a gold resource of 1.6 million oz. at Kukuluma, and a new deposit was outlined only recently at Matandani.

To date, 21 drill holes have penetrated gold mineralization at Matandani over a strike length of 300 metres. Three mineralized horizons have been located over a vertical extent of 140 metres.

In July 1997, Ashanti estimated that the Geita property contained a resource of 32.6 million tonnes grading 2.8 grams gold per tonne, equivalent to 3 million oz. Recent infill drilling at the Nyankanga target has added 500,000 oz. to the resource, bringing the total to 3.5 million oz.

Mineralization at Ashanti’s property is hosted in banded iron formations, with the strike length estimated at 5 km. Kukuluma is a shear-hosted deposit that cuts across the same formations at Geita, though it is situated 6 km away. Samax had already begun preliminary feasibility work on Kukuluma and expects to expand the project by including the new Matandani deposit.

Ashanti believes the combination of the Geita properties will, if developed, result in one of the largest gold mines in Africa.

“This creates a mega-property in one of the most prospective regions in Africa,” asserts Mark Keatley, Ashanti’s chief financial officer.

Cash operating costs for the combined project would be in the lower end of the cost spectrum, while synergies could result in savings of US$50 million, Keatley adds.

Ashanti had determined it could build a 2-million-tonne-per-year operation at a capital cost of US$90 million at its Geita property alone. Keatley says the combined project could double throughput and result in only a 33% increase in capital costs.

Ashanti has already begun a bankable feasibility study for the Geita property. The company had planned to make a production decision by the end of the year, with production beginning in 2000. Keatley says the addition of the Samax property will not delay the production timetable.

Samax also brings to the transaction a 50% interest in the Golden Pride mine, some several hundred kilometres south of Geita in the Tabora region of Tanzania. The mine is a product of Samax’s exploration team and is scheduled to begin production, with Resolute of Australia as operator, in November. It is expected to crank out 180,000 oz. annually for the first five years.

Samax controls additional properties in Ghana and Senegal, as well as the newly discovered Mougongo gold prospect in the Democratic Republic of the Congo. The company holds an 85% interest in a large licence in the Mayombe gold belt.