Ashanti moves to merge with Golden Shamrock Mines

As part of a strategy to become the world’s fifth-largest gold producer, Ashanti Goldfields (NYSE) has proposed another merger — this time with Australia’s Golden Shamrock Mines (TSE).

The deal would see Golden Shamrock’s shareholders receive one fully paid Ashanti ordinary share for every 22.5 shares of Golden Shamrock, plus a residual right to participate in the potential of Golden Shamrock’s Siguiri concession in Guinea. The exchange values each Golden Shamrock share at A$1.37, a 14% premium over its closing price. Excluding the rights of participation in the Siguiri concession, the transaction is valued at US$290 million.

Golden Shamrock brings to the table two projects of interest to Ashanti, namely Ghana’s Iduapriem gold mine and the Siguiri I project in Guinea.

The Iduapriem mine, of which Golden Shamrock owns 70%, is on the Birimian greenstone belt and produces about 130,000 oz. gold per year. The mine, which has proven and probable reserves of 1.7 million oz., is scheduled to expand its operations to 180,000 oz. later this year.

A feasibility study at Golden Shamrock’s 70%-owned Siguiri I project defined proven and probable reserves of 2.4 million oz. gold. Using a conventional carbon-in-pulp plant, the company expects to produce about 300,000 oz. gold per year.

As part of the merger, Ashanti would award Golden Shamrock shareholders an unlisted instrument, called the Siguiri Participating Interest (SPI), which will provide a benefit from increases in the resources at the mine until 2001.

In the event proven and probable reserves and contained mined production reach 3 million oz. in total, Ashanti will make cash payments equivalent to US$20 per oz. for every ounce produced in excess of that figure. The payments will then be divided by the total number of SPIs issued, which are estimated to number 12.5 million. In addition, Ashanti will pay about A9 cents per SPI for every million ounces produced in excess of 3 million oz.

Ashanti must also spend a minimum of US$2.5 million per year on exploration.

In an attempt to remain an exclusively African-oriented company, Ashanti has focused on Golden Shamrock’s West African properties. It has demonstrated little interest in Golden Shamrock’s Cobar copper mine in Australia. Proven and probable reserves there stand at 8.4 million tonnes grading 3.5% copper.

The company’s corporate strategy, according to chief executive officer Sam Jonah, is to build a first-class exploration portfolio of developing projects that could be placed in production within five years. Its program of acquisitions (of which Golden Shamrock is but the latest) is aimed at producing properties and near-term projects at a reasonable, non-dilutive price. To that end, Ashanti has acquired Cluff Resources and announced intentions to acquire Toronto-listed International Gold Resources (IGR) (T.N.M., April 8/96).

Following the merger with Cluff, Ashanti assumed controlling interests in Ghana’s Ayanfuri gold mine and the Freda Rebecca operations in Zimbabwe.

The proposal with IGR gives Ashanti a right to acquire a 45% interest in the proposed Bibiani mine, also in Ghana.

If the deal with Golden Shamrock proceeds, Ashanti’s production could top 1.5 million oz. annually, securing Ashanti’s status as the world’s fifth-largest producer.

The proposed merger with Golden Shamrock is conditional upon the approvals of shareholders and Australia’s foreign investment review board.

Pending the proposed merger, Ashanti has agreed to buy 10 million shares of Golden Shamrock at A$1.25 per share, to assist in the latter’s strategy for development in West Africa.

Ashanti already operates one of the world’s richest mines, near Obuasi, Ghana. The Obuasi mine, which has been in operation for about 100 years and contains reserves of 21 million oz. gold, is scheduled to undergo expansion. The mine produced 932,000 oz. last year.