Ashanti agrees to Lonmin debt plan

Lonmin, the platinum producer, has succeeded in persuading Ashanti Goldfields to change its debt restructuring plans in a move that could see it invest up to $116m in the Ghana-based gold miner.

London and New York-listed Ashanti agreed to Lonmin's plan on Friday after dropping an alternative proposal that it had been working on for a year.

Lonmin could end up increasing its stake in Ashanti from 32 per cent to 45 per cent under the new plan but insisted it was not attempting to acquire Ashanti by stealth.

"This will protect our stake in Ashanti from dilution but there has been no move away from our strategy of being a focused platinum producer," said Edward Haslam, chief executive.

Ashanti was forced into debt restructuring after almost going bankrupt in 1999 because of its disasterous hedging policy. An unexpected spike in the price of gold prompted hedging counter-parties to demand margin payments of $280m in case Ashanti failed to deliver gold sold forward.

Analysts said Ashanti would receive a net $316m under Lonmin's proposal, allowing it to clean up its balance sheet and putting it on a stronger financial footing. The proposal crucially includes margin-free trading agreements with hedge book counter-parties that will avoid punitive margin calls being made again in the future.

The previous restructuring plan would have involved swapping $219m of convertible bonds, due to mature in the spring, for a mixture of new equity and convertible bonds due in six years time.

Lonmin objected to this because bondholders would have received shares representing about a quarter of the debt at a price of $3.70 a share compared with Ashanti's current share price of $5.00.

The new plan involves the issue of $75m of mandatory exchangeable notes to Lonmin convertible at a maximum price of $5.40 a share when Ashanti holds a rights offer in the next 18 months. The Ghanaian government, which holds 20 per cent of Ashanti, has the right to buy up to $28.4m of the shares from Lonmin but is not expected by analysts to do so.

The plan also involves the early exercise of warrants held by hedge counter-parties and an agreement by banks to increase Ashanti's revolving credit facility from $55m to $200m.

Lonmin has given warrant holders the option to sell 13.6m shares back to Lonmin at $3 a share between April 2004 and April 2005. Its stake in Ashanti would only reach 45 per cent if all warrant holders exercised this option and no other shareholders participated in the rights issue.

Bondholders are understood to be unhappy with the new plan, despite an undertaking by Ashanti to pay them back at par.

"A few noses have been put out of joint by this but we don't believe there are any grounds for litigation against Ashanti," said one person close to the deal.

Lonmin was advised by Morgan Stanley and Ashanti was advised by Close Brothers.