JOHANNESBURG (Dow Jones)--Ghana's Ashanti Goldfields Company Ltd. (ASL) is clawing itself out of the crisis seen two years ago when its gold hedge book threatened to sink the company.
But it's not totally out of danger yet, warn its executives, who say that a financial restructuring must continue and be supported by creditors for it to survive.
If this and questions about Ghanaian government equity interest are solved it could be a takeover or merger target for other prominent African gold miners, including South Africa's Gold Fields Ltd. (GOLD), say analysts.
Tuesday Ashanti warned unless it could continue to restructure its debt it might not be able to meet debt repayments and could cease operations.
This was because one of its creditors is holding out and not agreeing to all the points in the plan, particularly on an extended margin-free trading period.
Ashanti's Treasurer, Mark Arnesen told Dow Jones Newswires that this one counterparty was Credit Suisse First Boston. Despite this he said that the financial plan would go ahead and that the overwhelming majority of creditors were onboard. The warnings were to let investors be aware of all possible risks, he said.
Tuesday Ashanti said that debt had fallen $39.8 million to $325.9 million from $365.7 million a year ago and that it had moved into a net profit of $60.6 million in fiscal 2001 from a loss of $139.6 million in 2000.
This is a far cry from October 1999 when a sudden rise in bullion prices pushed its hedge book to the edge and brought the company close to collapse.
Ashanti had bet so heavily that the price of gold would continue to fall that when it unexpectedly reversed, the margin calls on its derivatives became prohibitive.
To pull itself out the crisis it negotiated a margin-free trading period and revamped its hedge book. As of end December 2001, Ashanti's hedge book had a positive mark-to-market value of $88.8 million based on a bullion spot price of $277 a troy ounce. This compares with $29.1 million based on a spot price of $273 in 2000.
The company said that a lower U.S. interest rate environment and the aging of the book had benefitted Ashanti over the past two years.
In late 2001, Ashanti agreed with a committee of banks to restructure $219 million in exchangeable notes that were due to mature during the first quarter of 2003. A finance plan was also submitted to hedge counter parties and revolving credit facility banks on debt maturing during that quarter.
In essence, a quarter of these exchangeable notes would be converted to equity with the remaining 75% exchanged for new paper.
Earlier this month, Ashanti got agreement from an ad hoc committee of noteholders for an extended margin-free trading arrangements. Also, a syndicate of four banks agreed to provide an underwritten $100 million revolving credit facility on completion of the restructuring of its notes.
Even though Ashanti's Chief Executive Sam Jonah has achieved a partial success in strengthening the balance sheet and debt position, he argues that if the restructuring is not implemented during the coming financial year there will be problems paying back debt.
He said that if the restructuring is withdrawn or Ashanti fails to meet any of the conditions for the changes, Ashanti would find it hard to continue. This was a swipe at those banks still holding out on some of the conditions.
On a more positive note he said that progress with the financial plan meant that the company could continue as a going concern.
The gold miner is also looking to change its ownership structure which would open up opportunities for a merger
in the future. At the moment, the Ghanian government has a so-called 'golden share' single equity, which allows it a veto over any corporate decision. This is highly unattractive to potential shareholders, argues Jonah, who wants it removed.
Under new mining legislation being considered in Accra, the Ghanaian government is considering relinquishing this control.
This would open up a possibility of a merger or takeover of Ashanti by another gold miner.
Possible candidates have been South Africa's AngloGold Ltd. (AU) or Gold Fields Ltd. (GOLD). Gold Fields already has a stake in Ashanti's Teberebie concession in Ghana and AngloGold has a 50% interest in the Geita mine in Tanzania.
The Ghanian state owns 19% of Ashanti as well as the golden share.
"A full takeover of Ashanti is out of the question as it's the main foreign exchange earner for Ghana and is seen as a national asset," said Henk de Hoop, gold analyst with Credit Suisse First Boston Ltd. in Johannesburg.
He believes that Gold Fields is a likely candidate for a merger or major investor in Ashanti as the South African government would look kindly on a merger of African miners. In the past Pretoria blocked Gold Fields merging with Canada's Franco Nevada Mining Corp. (T.FN) due to exchange control considerations.
Gold Fields has been in talks with Ashanti in recent months although it reported last month that it had ended negotiations for the time being.
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