Strapped for cash and with now place left to turn, beleaguered
“The agreement with the banks is that we will initiate a disposal of a 50% interest in Geita, with agreed timetable completion,” says Mark Keatley, Ashanti’s chief financial officer. He adds that the agreement “will meet the condition for each [hedge] counter-party agreement to become fully effective in terms of margin-free trading.”
The major’s financial woes began in early October, when it received a margin call on its heavily loaded hedge book (now just over 9 million oz.) as gold touched US$340 per oz. Temporary standstill agreements have since been arranged, and financial restructuring continues.
That Ashanti has been soliciting partners for Geita is no secret, though the nature of the arrangement was. The revelation has raised concerns among some analysts, prompting Chief Executive Officer Sam Jonah state that the company will not tolerate a fire sale and expects to receive at least US$200 million. Whatever the amount, proceeds would primarily go towards paying down an estimated US$550 million in gross debt — a precondition of the financing. (Ashanti currently has US$50 million in cash, though a portion of this is serving as collateral.)
The financing is expected to closed by the end of February, followed by a joint-venture agreement in June. Commissioning would begin shortly thereafter, with 110,000 oz. gold produced by year-end. Production is expected to top 500,000 oz. annually, with cash costs projected at US$180 per oz.
Meanwhile, the High Court of Ghana has heard arguments from both Ashanti and a group of disgruntled minority shareholders. The shareholders are seeking new elections for the board of directors and the authority to sell assets.
For its part, Ashanti defends its actions and is confident of its case.
The court’s decision is expected to be announced shortly.
On a brighter note, Ashanti cranked out a record 437,178 oz. in the final quarter of 1999 at an average cash cost of US$190 per oz. — 10% less than in the year-ago period. Yearly output also entered record territory, with 1.56 million oz. produced at US$206 per oz., or 6% cheaper than in 1998, when 1.5 million oz. was produced.
A strong contributor was the now-expanded Siguiri mine, in Guinea, from which were produced 89,162 oz. in the recent quarter at US$169 per oz. That’s significantly better than in the previous quarter, when production was adversely affected by unusually heavy rains. The mine is now producing at an annual rate of greater than 300,000 oz.
Quarterly output at the flagship Obuasi mine in Ghana topped 197,399 oz. at US$199 per oz.; yearly output was 743,111 oz. at US$234 per oz. Although output was down compared with the corresponding periods of 1998, cash costs were better.
As part of its restructuring process, Ashanti has revised its life-of-mine plan at Obuasi to boost the net present value of reserves and resources. Consequently, surface mining will cease by the end of this year, with tailings re-treament scheduled to wind down two years later. Mining thereafter will focus on underground reserves: about 2.5 million tonnes will be exploited annually to produce about 550,000 oz. at less than US$200 per oz.
Record yearly output was also achieved at the Iduapriem, Bibiani and Freda-Rebecca mines, whereas production at the Ayanfuri mine was slightly off from the previous year.
Meanwhile, Ashanti has paid US$1.5 million to acquire 40 sq. km of the 230-sq.-km Dunkwa concession, held by
A feasibility study on Mampon, including a new reserve calculation, will be completed in the coming months. Independent estimates place Mampon’s resource at 600,000 oz., with 1.2 million tonnes grading 5 grams gold per tonne possibly amenable to open-pit exploitation. Upon completion of the study, Birim will receive an advanced royalty based on the number of ounces defined.
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