Lonmin makes offer for Ashanti Goldfields

Lonmin has come through with a merger offer for troubled Ashanti Goldfields (ASL-N), valuing the Ghanaian gold miner at US$820 million.

The London-based platinum producer was offering 0.744 share for each full share of Ashanti, with no cash component. Lonmin’s announcement of its offer came as Ashanti was renegotiating its hedging commitments, which turned from assets to liabilities early this month when gold prices made a sharp turnaround. Ashanti’s hedge book had a negative paper value of US$450 million on Oct. 5, when several lenders made margin calls on the hedge position.

Lonmin shares had closed at 6.09 (US$10.06) in London at presstime, which translated to an offer of around US$7.49 per share for Ashanti. Ashanti had rebounded from a low of US$3.75 on Monday to US$4.81 at presstime.

Ashanti issued a statement advising its shareholders to “exercise extreme caution before dealing in Ashanti’s securities,” warning that the merger offer carried the condition that Ashanti receive unanimous agreement from its major lenders and the counterparties to its hedging deals. Ashanti’s forward sales and calls are written with 17 large banks. Ashanti reached a standstill agreement with its lenders on Oct. 6, to prevent any margin calls.

The Ghanaian government, which owns 20% of Ashanti and has an effective veto on the bid, is backing the Lonmin offer. Mines and Energy Minister Fred Ohene-Kena was quoted in wire service reports and in Ghana’s Daily Graphic newspaper as saying the merger would improve Ashanti’s “competitive position” in the gold industry. Ohene-Kena said the government would be willing to tender its shares in exchange for a 10% interest in the merged company. Lonmin itself made the government’s blessing a condition of its offer.

The Lonmin offer could yet face competition from other gold producers eager to pick up Ashanti’s large reserves and production at what could be a low price. Names that have been dropped include Barrick Gold (ABX-T), which acquired Sutton Resources to gain a foothold in Tanzania and might want Ashanti’s Geita project as well; Anglo American (AAUK-Q) or Anglogold (AU-N), which are established in West Africa; and Goldfields (GLDFY-Q), which operates the Tarkwa mine in Ghana. A sweet enough offer from any of these companies could entice Lonmin to save itself the trouble of bailing out Ashanti’s hedge program and take a cheque for its large minority holding instead.