Writedowns push Ashanti into red

Writedowns in the fourth quarter of 1999 wiped out any earnings for Ashanti Goldfields (ASL-N).

During the 3-month period, writedowns totalled US$233.1 million (or $2.08 per share). Before these writedowns, the Ghana-based company earned US$3.3 million (or 3 per share); after writedowns, the company was left with a consolidated loss of US$229.8 million ($2.05 per share). By comparison, the corresponding period of 1998 saw the company earn US$9 million (18 per share).

For the year, the company posted earnings of US$66.1 million (59 per share), before US$250 million in writedowns ($2.23 per share). The consolidated loss in 1999 was US$183.9 million ($1.63 per share), compared with consolidated earnings of US$29.8 million (37 per share) in the previous year.

Charges in the fourth quarter consisted of a US$171.1-million writedown from the rationalization of the Obuasi mine in Ghana. Ashanti made a further provision of US$30 million for the carrying value of assets compared with future cashflow based on proven and probable reserves. The company also wrote down US$22 million for redundancies and obsolete stock.

The Obuasi mine, which produced 743,111 oz. during the year, is scheduled to be overhauled. Production should drop to 500,000 oz. annually as surface mining is expected to close at the end of 2000. The company will also close several shafts at the northern end of the mine and consolidate processing around the sulphide treatment plant. These and other proposed changes were met with resistance by mine workers, who walked off the job for 12 days in June.

Ashanti also posted a US$9-million extraordinary charge against earnings related to the company’s recent troubles with its hedging counterparties and lenders that ultimately resulted in the sale of half of the Geita project in Tanzania to AngloGold (AU-N).

In September 1999, the sudden rise in the gold price turned Ashanti’s extensive hedging program from a US$290-million winner into a US$570-million loser. This greatly strained the company’s resources, putting the construction at Geita in jeopardy. Ashanti solved the crisis by issuing equity warrants over 15% of the company’s shares to its hedging counterparties in return for three years with no margin calls and two additional years of elevated margin limits. However, the company was still unable to raise the funds to complete Geita’s construction.

The transaction with AngloGold, valued at US$335 million and signed in early April, allows for the mine’s completion and puts Ashanti on firmer footing. Under the deal, AngloGold will provide US$205 million in cash and US$130 million in financing for a half-interest in Geita.

Ashanti and AngloGold will operate the mine jointly, with commissioning targeted for June 2000. The year’s production should reach 150,000 oz., and, at full capacity, it should hit 500,000 oz. in each of the next five years. The partners will consider increasing capacity to 7 million tonnes per year, up from 4 million tonnes, by 2004. Geita also has significant underground potential. During the year, Ashanti improved resources at the mine to 12 million oz. gold, while proven and probable reserves increased to 5.5 million oz. within 49.8 million tonnes grading 3.5 grams per tonne.

For the year, Ashanti produced a record 1.6 million oz. at an average cash operating cost of US$205 per oz. Four of the company’s six mines operated at record levels in 1999.

At the 85%-held Siguiri mine in Guinea, Ashanti produced 239,218 oz. gold, despite flooding in the third quarter, which hampered operations. The company expects record production to continue next year, after doubling annual throughput to 8 million tonnes. At that rate, the mine should produce more than 300,000 oz. annually. In Ghana, the Bibiani mine contributed 261,899 oz., while the 80%-owned Iduapriem mine increased production 5% to 163,700 oz.

Proven and probable reserves at of the end of 1999 were off slightly for the company, falling to 22.6 million oz. gold from 23 million oz. a year ago.