Accra, Ghana, Aug. 15 (Bloomberg) -- Ashanti Goldfields Co., Africa's fourth-biggest gold company, said second-quarter profit dropped 61 percent because of lower gold prices and higher interest charges stemming from near bankruptcy last year.
Profit for the three months ended June 30 fell to $6.4 million, or 6 cents a share, from $16.4 million, or 15 cents a share, a year earlier. Production rose 26 percent to 433,050 ounces after a strike lowered output the year before.
The average price Ashanti received for its gold fell 12 percent to $336 an ounce as the company reduced the amount of gold it delivered under prearranged sales, a practice known as hedging, to cut the risk of making collateral payments should the gold price surge. Interest charges also rose after Ashanti borrowed money to develop a new mine.
``This year we have less than half of our production hedged,'' said Kweku Awotwi, the company's managing director of corporate affairs. ``We are trying to reduce our hedge book.''
Between Sept. 7 and Oct. 5 last year gold jumped as much as 27 percent as central banks said they would limit sales. That rise led banks to demand collateral payments from Ashanti, which the company couldn't afford, in case it couldn't deliver the gold it had pledged.
Those difficulties also led to the company to take out a loan to finish digging the Geita mine, now half owned by AngloGold Ltd., which helped push up interest charges for the quarter to $12.5 million from $1.4 million the year before.
Ashanti's shares slumped 65 percent since it announced it couldn't make the collateral payments and fell as much as 0.09 euro, or 3 percent, to 2.96 euro in Germany today. The company staved off the demands by granting the banks the right to purchase 15 percent of its shares at a discount.
Outlook
The price Ashanti receives for its gold could rise in coming quarters as from late June the company has been allowed to make changes to its sales program without consulting its creditors. Awotwi says this will allow it to respond quickly to any changes in the gold price.
Earnings could also be boosted by a surge in production expected from the opening of Geita and improvements in output and production costs at some of its other mines in Ghana and Guinea.
Still, inflation pushed output costs 27 percent higher at the Freda Rebecca Mine in Zimbabwe and had the government not devalued the currency this month, lowering costs measured in dollars, Zimbabwe's biggest gold mine would have had to close within six months.
Before Ashanti's share price plunged the company was the biggest by market value in sub-Saharan Africa outside South Africa. It now lags Barclays Bank Plc's listed subsidiaries in Zimbabwe and Botswana.
Ashanti accounts for about two fifths of Ghana's export income.
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