AFRICA — Ashanti pays off financing, holds down debt

Through a restructuring of its hedging policy, Ashanti Goldfields (AHD-T) has paid off project financing at its two newest gold mines.

The Ghana-based company closed out forward sales and put options, resulting in US$56.1 million. This, together with US$36.9 million from cashflow at the Bibiani and Siguiri mines, enabled Ashanti to pay off the financing three years ahead of schedule.

The company took out the cash value on 732,000 oz. gold in forward sales and put options. As of the end of September 1998, Ashanti’s hedge position covered 7.6 million oz. of future production.

Ashanti supplemented cashflow at Bibiani and Siguiri to pay down US$93 million in project financing at the two mines.

Ashanti borrowed US$60 million in the fall of 1997 for construction of the Bibiani mine in Ghana, and another US$40 million later in the year for construction at Siguiri in Guinea.

Both mines performed better than expected during the past year.

Bibiani has produced 96,342 oz. since startup in February 1997, though full production was not achieved until July. Gold output in the third quarter was 37% higher than expected. Cash costs for the first nine months of 1998 were US$177 per oz.

At Siguiri, Ashanti has produced 135,050 oz. gold since startup in February 1998 at a cash cost of US$161 per oz. In the third quarter, the mine produced 50,778 oz. gold (13% above expectations) at US$136 per oz. (32% better than expected).

The company plans to spend US$27 million to expand Siguiri in 1999. Throughput should double to 8 million tonnes per year, raising production to 250,000 oz. gold annually. The expansion will be funded through cashflow.

Ashanti holds a 70% interest in Siguiri, with the remainder held by the government of Guinea and International Finance Corp., an arm of the World Bank.

The early payoff at Bibiani and Siguiri is part of the company’s plan to reduce overall debt. Net debt as of the end of September was around $395 million.

The company recently signed a revolving credit facility with Chase Manhattan Bank for US$270 million. Just over half of the proceeds will be used to refinance debt from 1995. Another US$118 million will be used to develop the Geita project in Tanzania, and for general purposes.

Ashanti plans to double the scale of the Geita project to 400,000 oz. per year, making it one of the largest gold mines in Africa (excluding South Africa). Capital costs for the expansion are expected at US$130 million. Ashanti plans to finance the project out of the revolving facility, as well as through cashflow.