AngloGold eyes top spot

Looking to regain top spot among global gold producers, South Africa’s AngloGold says it is in early-stage talks aimed at a merger with Ghana-based Ashanti Goldfields (ASL-N).

In a brief cautionary statement, the world’s second-largest gold miner confirmed that talks with Ashanti and certain of its stakeholders were ongoing, but offered no assurances that a deal would be reached.

Ashanti also confirmed the talks, which it said are centred on a plan to merge the two companies at a rate of 26 AngloGold shares for every 100 Ashanti ordinary shares or global depositary securities.

Based on Anglo’s closing price on May 16 in New York, the deal rates Ashanti’s shares at US$7.77 apiece, a premium of about 10% above Ashanti’s New York closing price of US$7.10 per share on May 15.

With some 128.1 million Ashanti shares issue, Anglo would have to issue around 33.3 million shares to complete the deal, which would be worth more than US$1 billion. Mining giant Anglo American 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” that permits it to veto any significant change in the company.

In 2002, Ashanti produced just more than 1.6 million ounces of gold from mines in Ghana, Guinea, Tanzania and Zimbabwe. Cash operating cost came in at US$199 per ounce. 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 ounces protected at an average price of US$358 per ounce 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 ounce.

AngloGold’s 2002 gold production tallied to 5.9 million ounces at a total cash cost of US$161 per oz. Expectations for 2003 are for 6 million ounces.

Anglo and Ashanti area 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 ounce, compared to 545,562 year-earlier ounces at US$143 each.

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

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