Ashton urges acceptance of De Beers’ bid

The board of directors of Australian-listed Ashton Mining has recommended that its shareholders reject Rio Tinto‘s (RTP-N) A$1.85-per-share offer, which it described as “neither fair nor reasonable,” and accept instead the higher bid of A$2.28 presented by De Beers Consolidated Mines (DBRSY-Q).

Ashton’s board says Rio’s bid is well below the independent valuation by KPMG Corporate Finance that determined Ashton’s shares were worth an assessed value of A$2.23-2.70. Despite being outbid by De Beers, Rio has left its offer on the table. The London-based major recently declared its offer for Ashton’s shares unconditional, following the receipt of all regulatory approvals. Rio’s offer was due to close Nov. 6.

De Beers’ revised offer, which has been further extended, to Nov. 10, is conditional on a 50.1% minimum acceptance and approval by the Foreign Investment Review Board (FIRB) and foreign competition regulators.

Ashton’s directors say they are looking forward to the early fulfilment of these conditions in order to remove any remaining uncertainty for shareholders about the De Beers bid. The South African major has locked up support with Ashton’s largest shareholder, 49.9%-owner Malaysia Mining Corporation Berhad, which has agreed to tender 19.9% of Ashton’s issued capital to De Beers.

Malaysia Mining had also entered into a separate conditional acceptance agreement with Rio over the sale of another 19.9% Ashton block. This agreement expired when Rio failed to increase its offer within five business days following the revised De Beers bid.

In the event De Beers achieves acceptance for 50.1% of Ashton’s shares and its offer becomes unconditional, Ashton intends to pay a special dividend of A20 per share. The cash value of the special dividend, once paid, will be deducted from De Beers’ offer price.

Ashton owns an effective 40.2% interest in the Argyle diamond mine in the Kimberley region of Western Australia. Rio Tinto is the operator and owns a 59.7% stake.

In the first nine months of 2000, the Argyle mine recovered about 21 million carats of diamonds from 8 million tonnes of AK1 lamproite ore and 3.9 million tonnes of alluvial. In the corresponding period of 1999, the mine recovered 22.3 million carats from 7 million tonnes of AK1 ore and 4.4 million tonnes of alluvial.

During the third quarter, Argyle produced 6.7 million carats, compared with 7.5 million carats in the preceding (second) quarter and 7.9 million carats in the third quarter of 1999. The lower production reflects the lower grade of ore, which is nonetheless in line with expectations as crews carrying out ongoing pit development have limited access to some of the higher-grade areas.

Argyle diamond sales for the first half of 2000 totalled US$256.5 million, and sales for the full year are projected to remain around 1999 levels of US$400 million, despite lower production levels.

Argyle has developed a market for a brand of rare, pink diamonds. The pink stones represent an extremely small proportion of total mine production. The 16th annual Argyle pink tender was held in September, with 47 stones weighing 46.43 carats fetching A$3.1 million. The two key stones were 1.66-carat and 1.75-carat purplish-pink diamonds.

At the end of 1999, proven and probable reserves at Argyle were estimated 63.8 million tonnes grading 2.6 carats per tonne for the AK1 open-pit and 5.8 million tonnes grading 0.24 carat for alluvial material. Additional resources totalled 145.2 million tonnes of AK1 lamproite grading 2.9 carats and 45 million tonnes of alluvial grading 0.2 carat.

Ashton’s wholly owned Merlin diamond project, in the Northern Territory, produced 33,693 carats of diamonds from 165,397 tonnes of processed ore during the third quarter. Mining was focused on the southern cluster of pipes, including Launfal, Launfal North, Excalibur and Sacramore. In the first nine months of the year, 134,505 carats were recovered from the Merlin project, which remains on-target to produce 165,000 carats for the year.

Merlin diamond sales during the nine months totalled US$11.2 million for an average of price of US$117 per carat. An October sale of 51,107 carats commanded an average of US$101 per carat.

During the third quarter, an 11.1-carat stone worth more than US$4,500 per carat was recovered from the Launfal pipe. In addition, the Gareth body yielded a 39.5-carat diamond and another, weighing 27 carats. Subsequent to the end of the quarter, a 41.95-carat stone was found in the Kay pipe.

Ashton holds a 33.3% interest in the Cuango alluvial project in Angola, which recovered 65,149 carats during the September quarter. Diamond sales of 56,744 carats to the Angola Selling Corporation brought in US$15 million.

A second round of drilling was completed on a new kimberlite discovery in Mauritania, northern Africa. Up to seven tonnes of material were collected from the MAQ-1 kimberlite. Selected samples are currently being processed for microdiamonds. The first results are expected in November.

Dia Met Minerals (DMM-T) can earn a 44.1% interest in the more than 180,000 sq. km of licences held by Ashton in Mauritania by spending US$10 million on exploration. The government of Mauritania holds a 10% interest in some of the licences included in the joint venture. Ashton operates the project.

An initial 369.2-kg of selected reverse-circulation samples from the discovery hole on the MAQ-1 kimberlite yielded 47 microdiamonds and 31 fragments of larger stones weighing a total of 2.86 carats. It is believed that the diamond fragments were derived from at least seven stones measuring greater than 0.8 mm. The largest stone is believed to have consisted of three fragments weighing more than 1.7 carats.

A second series of samples, taken from the same hole as a check, returned only five micros from 244.6 kg. Ashton believes the variability reflects the complex geology of the pipe.