An infusion of cash from a US$75-million note issue allowed Ghanaian gold producer
At the same time, an increasing gold price has meant that revenue has grown despite a decline in gold production from Ashanti’s mines, and operating earnings are up.
For the three months ended June 30, Ashanti posted a loss of US$3.7 million (US3 per share) on revenue of US$141.2 million, a loss that included US$22.5 million on one-time refinancing and restructuring costs. Before those items, the company made US$18.8 million (or US17 per share). In the second quarter of 2001, Ashanti made US$14.1 million on revenue of US$139.9 million.
Over the first half of the year, the company showed net earnings of US$12.8 million (US11 per share) on revenue of US$278.1 million. Ashanti was US$23.1 million ahead at the half-pole in 2001, on slightly lower revenue of US$269.4 million.
During the quarter, Ashanti raised US$306.8 million through a series of securities issues, including the issue of US$75 million in mandatory exchangeable notes to U.K.-based
Ashanti’s lenders and hedge counterparties agreed, under the refinancing formula, to exercise 13.8 million warrants to buy Ashanti shares for a further US$41.4 million. The lenders and counterparties held warrants in the company following a liquidity crisis in September 1999, when a sudden rise in the gold price erased the value of Ashanti’s hedge book and subjected the company to a series of margin calls on its hedges.
A newly established revolving credit line for US$200 million allowed Ashanti to draw down a further US$190 million to buy back US$218.6 million in outstanding debt. The refinancing removed the last margin requirements in Ashanti’s hedging contracts.
Ashanti’s hedge book is still negatively valued, being about US$112.8 million under water at the quarter-end gold price of US$319. The company has 7.1 million oz. committed on hedge contracts through 2013, representing about 61% of production.
The bulk of the hedging is through forward sale contracts, amounting to 4.3 million oz. at an average price of US$355. It also has sold 3.8 million call options that can be exercised at an average price of US$353.
A higher realized price for gold — US$342 per oz. during the first half of the year, as opposed to US$322 per oz. in the first half of 2001 — built up the top line, though production, including Ashanti’s share of production from joint ventures, fell to 777,743 oz. from 798,031 oz. the year before. Company-wide, cash operating costs were US$191 per oz., up marginally from US$188 in the first half of 2001.
Ashanti’s Obuasi and Iduapriem mines in Ghana both produced below budget during the period. Head grades at Obuasi were lower than expected, and Iduapriem (in which International Finance Corp. holds a 20% interest) suffered a fire in its leach plant in May, which knocked out production for about a month.
Obuasi produced 120,051 oz. in the second quarter and 260,147 oz. in the first half of the year, with cash costs averaging US$196. In the first half of 2001, Obuasi had produced 261,721 oz. at US$192 per oz.
Lower grades
Underground production of 609,000 tonnes from Obuasi was slightly lower, compared with the second quarter of last year, when 625,000 tonnes were hoisted. Grades were around 7.5 grams gold per tonne, which was also slightly lower than a year before. Small quantities of ore also came from the Homase open pit, which brought mill throughput up compared to last year, but at lower head grades. Recovery rates in the mill were fractionally better than a year ago.
Ashanti described exploration drilling from underground stations at Obuasi as “very encouraging,” with particularly good results from deep drilling near the Kwesi Mensah shaft. On the 54 Level near the Kwesi Mensah shaft, drill holes intersected 21.2 grams gold per tonne over a 3.1-metre interval and 65.3 grams over 8.7 metres. On the 56 Level, another hole cut 2.1 metres running 177.5 grams per tonne.
Refractory ore reduced mill recoveries at the Bibiani open pit mine, offset by higher grades. Bibiani produced 61,219 oz. in the quarter and 121,025 oz. in the first half, at an average US$184 per oz.
All Ashanti’s Ghanaian operations were affected by periodic power failures, which largely served to reduce mill throughput.
There was record production from the Geita mine in Tanzania, where Ashanti is an equal partner with
A plant expansion at Geita, which includes a secondary crushing circuit and additional leach tanks, is on schedule for completion by the end of the year. The expansion will bring the mill’s capacity to 6 million tonnes annually.
Joint venture
The Ashanti-Anglo joint venture continues drilling at surrounding gold deposits on the Geita property, including Nyankanga (where expansion of the existing pit is planned), Geita Hill (where several wide, high-grade zones were intersected during the quarter), and two other prospects, Lone Cone and Northeast Extensions.
Siguiri, Ashanti’s open-pit and heap-leach operation in Guinea, produced 79,077 oz. in the quarter and 148,219 oz. in the first six months of the year. Lower head grades (1.2 grams compared with 1.5 grams per tonne a year ago) weighed down production, but costs fell to US$205 per oz. for the half, compared with US$215 in the first half of 2001.
Ashanti is drilling off the Bidini deposit, south of the main Siguiri pit, where a preliminary estimate puts the resource at 3.9 million tonnes of saprolitic material grading 2.1 grams gold per tonne. Recent drilling encountered 68 metres grading 5.5 grams gold per tonne and 38 metres grading 2.8 grams.
At the Freda-Rebecca mine in Zimbabwe, second-quarter production of 27,214 oz. was slightly lower than in 2001, as maintenance shutdowns at the mill brought throughput down 4%. Metallurgical difficulties with the Freda-Rebecca ore, and mechanical problems in the mill, had depressed recoveries to 76% in the first quarter, but the repairs have brought recoveries back to 87%. First-half cash costs increased to US$225 per oz. from US$213 in the first half of 2001.
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