Ashanti ends profitable quarter (November 04, 2002)

Ghanaian gold producer Ashanti Goldfields (ASL-N) maintained its profitability in the third quarter, while the pressure of near-term debt continued to subside. Ashanti made US$22.5 million (or US18 per share) on revenues of US$141.2 million in the three months ended Sept. 30.

The result is an improvement over the third quarter of last year, when earnings totalled US$14.5 million on revenues of US$136.2 million. Production was steady at 390,410 oz. (as against 393,985 oz. in the third quarter of 2001) while higher gold prices swelled the revenue line.

The effects of hedging showed up in the top line as well, though in a rising gold market they were not wholly favourable. Ashanti realized an average of US$347 per oz. in the quarter, US$32 higher than the spot price. In 2001, the company took in an average of US$331, but that figure was a premium of US$49 over spot.

For the nine months ended Sept. 30, Ashanti is showing a US$35.3-million profit (US30 per share) on revenues of US$419.3 million. The figure includes a US$23.5-million charge to earnings taken in the second quarter, which reflects restructuring of the company’s debt.

Ashanti’s attributable production was down slightly, at 1.17 million oz., compared with 1.25 million in the first nine months of 2001. In that period, the company made US$37.6 million on US$405.6 million in sales.

Production at the Geita mine in Tanzania, where Ashanti is in an equal joint venture with AngloGold (AU-N), was a record 164,673 oz. in the third quarter, with cash operating costs of around US$155 per oz. But operating results at most of Ashanti’s other mines were poorer.

The company’s mainstay operation at Obuasi in Ghana produced 126,251 oz. gold in the quarter, which fell below plan because of lower head grades (7.6 grams gold per tonne) and lower mill recoveries. Carbonaceous ore reduced recoveries at the Bibiani mine in Ghana, as did heavy rains at the Siguiri heap-leach project in Guinea.

Ashanti still sees production of almost 1.6 million oz. gold in 2002.

The second quarter of this year had seen Ashanti move out of working capital deficiency, a situation that grew out of the sinking of the company’s hedge book in late 1999. It now has current assets of US$176.6 million (including US$57.7 million in cash) which exceeds its near-term debt by US$20.3 million.

Apart from the charge to earnings taken in the second quarter, restructuring of the debt pushed Ashanti’s liabilities further into the future; long-term liabilities, mainly corporate debt, now amount to US$419 million, up from US$340.3 million at the beginning of the year.

The hedge book that started all the trouble, though, is increasingly docile; it now shows a negative mark-to-market value of US$46 million. The mark-to-market value is based on a spot gold price of US$323 per oz., so at present spot prices of around US$317 per oz., that negative value would be slightly smaller.

The hedges commit 6.7 million oz. between now and 2013, about 60% of Ashanti’s expected production at US$355 per oz. Forward sales and put options in that portfolio protect about 5 million oz. at US$358 per oz.

The book does not include project hedging at Geita, which is administered separately. Just over 960,000 oz. of Geita’s production is protected, at US$291 per oz., and about 87% of that is committed.