AngloGold eyes top spot with Ashanti takeover

Looking to regain top spot among global gold producers, South Africa’s AngloGold (AU-N) has entered talks aimed at achieving a merger with Ghana-based Ashanti Goldfields (ASL-N).

The talks are centred on a plan to merge the companies at a rate of 26 AngloGold shares for every 100 Ashanti ordinary shares or global depositary securities.

Based on AngloGold’s closing share price on May 16 in New York of US$7.77, that represents a premium of about 10% above Ashanti’s New York closing price of US$7.10 per share on the previous day.

With some 128.1 million Ashanti shares outstanding, AngloGold would have to issue 33.3 million shares to complete the deal, which would be worth more than US$1 billion. Mining giant Anglo American (aauk-q) owns 51.4% of AngloGold and would retain control even after an issue of new shares.

London-listed Lonmin, the world’s third-biggest platinum producer, said it was talking to AngloGold about the fate of its 28% stake in Ashanti.

The Ghanaian government holds a 17.1% stake in Ashanti, including an infamous “golden share,” which permits it to veto any significant change in the company.

In 2002, Ashanti produced just more than 1.6 million oz. gold from mines in Ghana, Guinea, Tanzania and Zimbabwe, with cash operating costs coming in at US$199 per oz. The company expects similar production in 2003.

Four years ago, Ashanti nearly succumbed to a hedge book gone wrong. At the end of 2002, the hedge book contained 5 million oz. gold protected at an average price of US$358 per oz. and 6.5 million committed ounces averaging US$346 each. At the end of December, the hedge book’s negative mark-to-market value was US$15 million, based on a spot price of US$345 per oz.

AngloGold produced 5.9 million oz. gold in 2002 at a total cash cost of US$161 per oz. Expectations for 2003 are for 6 million oz.

AngloGold and Ashanti are already equal partners at the Geita open-pit mine in Tanzania. In 2002, Geita ran through about 5 million tonnes of ore to produce a record 579,043 oz. at a cash operating cost of US$163 per oz., compared with 545,562 oz. at US$143 each a year earlier.

Last year, AngloGold was eclipsed by Newmont Mining (NEM-N), which took over the reins as the world’s top gold producer via its merger with Normandy Mining and Franco-Nevada Mining.

Newmont’s 2003 production estimate is 7.3 million equity ounces at a total cash cost of US$200 per oz.