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Opinions Sat, 1 Nov 2003

AGC 101 - Basics Facts About The Proposed Merger

Many a comment has been made about the proposed merger between Ashanti and Anglogold. Unfortunately, many of these comments have been coming from people who are not well-informed about the whole merger issue or have little knowledge on how modern businesses operate.

Some journalists like the Kwesi Pratt’s, who should have had the time to research the issue before making any comments, characteristically choose the route of just ‘talk-talk’ without any little substance. They choose to continue the perpetuation of their ‘lazy journalism’ – journalism with absolutely no research or self-education about the issues on the table. In doing that they reveal their ignorance and make themselves laughingstock to those who know how the world works. These Kwesi Pratt journalists call for the outright rejection of the merger proposal between Ashanti and Anglogold but call on Ashanti to solicit for funds to invest in the company to expand it. They do not seem to realize that Ashanti has credit problems and has been unsuccessful at soliciting for funds for many years. Besides the credit problems the expansion of the mine requires expertise from people who have had that experience and who understand the complexities of managing a much complex business. It is for this reason that I will seek to bring the issues to the basics for everyone so that people will understand the issues at stake better and the repercussions of our actions on our economy.

Some have been quick to point fingers at the government, blaming it for selling the proverbial ‘goose that lays the golden eggs’. Others are keeping their fingers crossed hoping to be presented with the opportunity to point it, accusingly, should any problems arise from the proposed merger. But I think if the whole deal is broken down to its basics it will be clear to everyone that an Ashanti-Anglogold merger will be in Ghana’s interest.

First of all, what we need to understand is that our country is a shareholder in AGC and not the absolute owner. In fact, the Rawlings’ government, with Dr. Kwesi Botchwey in charge of the Finance Ministry, sold a huge chunk of our shares in AGC reducing us from majority owners (45% ownership) to a minority owner. The majority owner is now Lonmin plc, which owns 28% shares in AGC, compared to Ghana’s 17%. The remaining shares are owned by various institutions and private people, including some Ghanaian citizens. So these different shareholders are the true owners of AGC. If AGC makes a huge profit and decides to payout a mouth-watering dividend to its shareholders, the ordinary Ghanaian on the street will not receive this dividend. Only Ghanaians who bought or own AGC shares will enjoy it. Of course, the government will take its dividend based on its 17% ownership.

Why do we not own AGC completely? Well, Gold mining is a capital-intensive venture. You need to purchase very expensive machinery in order to produce even a bar of gold. Unfortunately, for us we are not that rich. The old governments had to decide whether to use all our resources, and even borrow some more money, to invest in AGC and become the sole owners or to use those same resources to provide social amenities like schools, build roads, hospitals, etc. Moreover, we, then, lacked the expertise to operate such a company. But the other option would have been to keep our gold deposits from being mined till the time that we would have been able to raise that huge capital to mine it ourselves. It’s obvious that inviting foreign private capital to come in to our aid and invest in the mine so that the profits accrued will be shared was the best option. But our ancient governments were wise enough to have claimed a ‘golden share’ in the new company that makes it possible for the government to sanction any move by the company that would not be in the country’s interest.

Hence, so long as we do not own AGC solely, we do not have a huge say in the day-to-day running of AGC except as a significant shareholder with our one representative on the company’s board. Otherwise, the Board of AGC runs the company. It’s a known fact that the Obuasi gold mine has huge deposits, yet they remain unexploited. AGC lacks the capital and know-how to exploit such deep mines. That’s why the Board for a number of years, starting when Rawlings was in power, called on the government to approve the mergence of the company with a bigger and richer partner. But for obvious political reasons that call was not approved by the Rawlings government and that decision by them nearly led to the collapse of AGC, as it could not meet its credit or debt obligations due to the falling price of gold on the market during those days.

With the coming in of a more enterprising government which calls for economic expansion through private ownership and investments, the Board of AGC again raised the issue of merging with a bigger company. So Anglogold and Randgold came in to bid with the hope that if they succeed in merging with Ashanti they could increase their profits and pay their own shareholders better, provided they are able to invest and expand exploitation at the Obuasi mines. None of these companies came in to buy AGC. I doubt if any of them had the resources to buy AGC outright. What they sought to do was to merge with AGC so that the shareholders of the two companies will then become shareholders of a common company- Anglogold-Ashanti. Anglogold offered $1.4 billion in shares. An Anglogold-Ashanti merger means that Ghana still will be a shareholder of the new company, but our shares in the new company will be less than the current 17%. This is because Anglogold is much bigger than AGC so the value of 17% shares in Ashanti will be less in Anglogold or the proposed Anglogold-Ashanti Corporation. However, the real dividends that will accrue to Ghana, all things being equal, will be much higher than if when we had kept the 17% shares in AGC. So in effect, if Anglogold-Ashanti is able to increase production in Obuasi and the other mines owned by the two merging companies, Ghana will receive a bigger dividend yearly.

So let us now get the facts right. Ghana has not sold her own shares in AGC. We will still make as much dividend as we make now in AGC in a merged Ashanti-Anglogold, if not much higher. The increased production that is hoped to occur following the merger of the two companies will be great for our economy. It will mean that shareholders, including Ghanaian shareholders, will have a bigger dividend. It will also mean that the expanding corporation will have to employ a larger work force to increase production, thereby generating employment avenues for our people. An expanded AGC-Anglogold will also mean that the government can have an increase in its tax revenue and royalties from the corporation, which it can use for other developmental projects. Those who do not own shares in AGC will also benefit indirectly from the ‘trickle down effect’. As the AGC-Anglogold becomes wealthier, the Ghanaian economy will expand and with that ordinary citizens will have more opportunities to prosper.

The opposite is also true. If we should decide to keep Kwesi Pratt’s advice and hang on to AGC as it is now, we stand to lose eventually, if there should be a huge drop in gold prices. AGC could then potentially go bankrupt. Then all shareholders will lose their investments including Ghana’s 17%. Then all the AGC Ghanaian employees will lose their jobs and will add to the unemployment statistics. Then all the dependents of these AGC employees will face financial difficulties and will become a burden on the limping economy. Then all the industries that have developed as a result of AGC will collapse. If anyone has doubts about the domino effects of a collapse of an important industry on the entire economy, I invite them to research the Steel Industry of the United States that has virtually collapsed under international competition. They would find out how the collapse of one steel company in Gary, Indiana led to the collapse of the entire city’s economy and turned the once-prosperous Gary into a ‘ghost’ town.

This is the issue at stake. We need to move from the age where we saw all investors as ‘people out there to rip us off’ and instead see them as people who we can join hands with to develop our country for our mutual benefits. Such old and parochial thinking of investors as criminals has left us where we are as a third world country. We need to change our thinking. The government’s main responsibility is to ensure that all investors abide with our laws. If they do abide with them, we should encourage them to exploit our potential wealth for the benefit of the two parties (the country and the investor). Countries like South Korea started developing after huge Japanese investments in their economy. But with time as the country developed, more Korean nationals and institutions bought shares in those Japanese-owned companies, and eventually a lot of those companies have now become Korean-owned. That’s how the world works. We need to stop thinking as communists. Those who breathed communism have themselves embraced capitalism because communism is a failed ideology. If in doubt ask the Russians!


Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.


Many a comment has been made about the proposed merger between Ashanti and Anglogold. Unfortunately, many of these comments have been coming from people who are not well-informed about the whole merger issue or have little knowledge on how modern businesses operate.

Some journalists like the Kwesi Pratt’s, who should have had the time to research the issue before making any comments, characteristically choose the route of just ‘talk-talk’ without any little substance. They choose to continue the perpetuation of their ‘lazy journalism’ – journalism with absolutely no research or self-education about the issues on the table. In doing that they reveal their ignorance and make themselves laughingstock to those who know how the world works. These Kwesi Pratt journalists call for the outright rejection of the merger proposal between Ashanti and Anglogold but call on Ashanti to solicit for funds to invest in the company to expand it. They do not seem to realize that Ashanti has credit problems and has been unsuccessful at soliciting for funds for many years. Besides the credit problems the expansion of the mine requires expertise from people who have had that experience and who understand the complexities of managing a much complex business. It is for this reason that I will seek to bring the issues to the basics for everyone so that people will understand the issues at stake better and the repercussions of our actions on our economy.

Some have been quick to point fingers at the government, blaming it for selling the proverbial ‘goose that lays the golden eggs’. Others are keeping their fingers crossed hoping to be presented with the opportunity to point it, accusingly, should any problems arise from the proposed merger. But I think if the whole deal is broken down to its basics it will be clear to everyone that an Ashanti-Anglogold merger will be in Ghana’s interest.

First of all, what we need to understand is that our country is a shareholder in AGC and not the absolute owner. In fact, the Rawlings’ government, with Dr. Kwesi Botchwey in charge of the Finance Ministry, sold a huge chunk of our shares in AGC reducing us from majority owners (45% ownership) to a minority owner. The majority owner is now Lonmin plc, which owns 28% shares in AGC, compared to Ghana’s 17%. The remaining shares are owned by various institutions and private people, including some Ghanaian citizens. So these different shareholders are the true owners of AGC. If AGC makes a huge profit and decides to payout a mouth-watering dividend to its shareholders, the ordinary Ghanaian on the street will not receive this dividend. Only Ghanaians who bought or own AGC shares will enjoy it. Of course, the government will take its dividend based on its 17% ownership.

Why do we not own AGC completely? Well, Gold mining is a capital-intensive venture. You need to purchase very expensive machinery in order to produce even a bar of gold. Unfortunately, for us we are not that rich. The old governments had to decide whether to use all our resources, and even borrow some more money, to invest in AGC and become the sole owners or to use those same resources to provide social amenities like schools, build roads, hospitals, etc. Moreover, we, then, lacked the expertise to operate such a company. But the other option would have been to keep our gold deposits from being mined till the time that we would have been able to raise that huge capital to mine it ourselves. It’s obvious that inviting foreign private capital to come in to our aid and invest in the mine so that the profits accrued will be shared was the best option. But our ancient governments were wise enough to have claimed a ‘golden share’ in the new company that makes it possible for the government to sanction any move by the company that would not be in the country’s interest.

Hence, so long as we do not own AGC solely, we do not have a huge say in the day-to-day running of AGC except as a significant shareholder with our one representative on the company’s board. Otherwise, the Board of AGC runs the company. It’s a known fact that the Obuasi gold mine has huge deposits, yet they remain unexploited. AGC lacks the capital and know-how to exploit such deep mines. That’s why the Board for a number of years, starting when Rawlings was in power, called on the government to approve the mergence of the company with a bigger and richer partner. But for obvious political reasons that call was not approved by the Rawlings government and that decision by them nearly led to the collapse of AGC, as it could not meet its credit or debt obligations due to the falling price of gold on the market during those days.

With the coming in of a more enterprising government which calls for economic expansion through private ownership and investments, the Board of AGC again raised the issue of merging with a bigger company. So Anglogold and Randgold came in to bid with the hope that if they succeed in merging with Ashanti they could increase their profits and pay their own shareholders better, provided they are able to invest and expand exploitation at the Obuasi mines. None of these companies came in to buy AGC. I doubt if any of them had the resources to buy AGC outright. What they sought to do was to merge with AGC so that the shareholders of the two companies will then become shareholders of a common company- Anglogold-Ashanti. Anglogold offered $1.4 billion in shares. An Anglogold-Ashanti merger means that Ghana still will be a shareholder of the new company, but our shares in the new company will be less than the current 17%. This is because Anglogold is much bigger than AGC so the value of 17% shares in Ashanti will be less in Anglogold or the proposed Anglogold-Ashanti Corporation. However, the real dividends that will accrue to Ghana, all things being equal, will be much higher than if when we had kept the 17% shares in AGC. So in effect, if Anglogold-Ashanti is able to increase production in Obuasi and the other mines owned by the two merging companies, Ghana will receive a bigger dividend yearly.

So let us now get the facts right. Ghana has not sold her own shares in AGC. We will still make as much dividend as we make now in AGC in a merged Ashanti-Anglogold, if not much higher. The increased production that is hoped to occur following the merger of the two companies will be great for our economy. It will mean that shareholders, including Ghanaian shareholders, will have a bigger dividend. It will also mean that the expanding corporation will have to employ a larger work force to increase production, thereby generating employment avenues for our people. An expanded AGC-Anglogold will also mean that the government can have an increase in its tax revenue and royalties from the corporation, which it can use for other developmental projects. Those who do not own shares in AGC will also benefit indirectly from the ‘trickle down effect’. As the AGC-Anglogold becomes wealthier, the Ghanaian economy will expand and with that ordinary citizens will have more opportunities to prosper.

The opposite is also true. If we should decide to keep Kwesi Pratt’s advice and hang on to AGC as it is now, we stand to lose eventually, if there should be a huge drop in gold prices. AGC could then potentially go bankrupt. Then all shareholders will lose their investments including Ghana’s 17%. Then all the AGC Ghanaian employees will lose their jobs and will add to the unemployment statistics. Then all the dependents of these AGC employees will face financial difficulties and will become a burden on the limping economy. Then all the industries that have developed as a result of AGC will collapse. If anyone has doubts about the domino effects of a collapse of an important industry on the entire economy, I invite them to research the Steel Industry of the United States that has virtually collapsed under international competition. They would find out how the collapse of one steel company in Gary, Indiana led to the collapse of the entire city’s economy and turned the once-prosperous Gary into a ‘ghost’ town.

This is the issue at stake. We need to move from the age where we saw all investors as ‘people out there to rip us off’ and instead see them as people who we can join hands with to develop our country for our mutual benefits. Such old and parochial thinking of investors as criminals has left us where we are as a third world country. We need to change our thinking. The government’s main responsibility is to ensure that all investors abide with our laws. If they do abide with them, we should encourage them to exploit our potential wealth for the benefit of the two parties (the country and the investor). Countries like South Korea started developing after huge Japanese investments in their economy. But with time as the country developed, more Korean nationals and institutions bought shares in those Japanese-owned companies, and eventually a lot of those companies have now become Korean-owned. That’s how the world works. We need to stop thinking as communists. Those who breathed communism have themselves embraced capitalism because communism is a failed ideology. If in doubt ask the Russians!


Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.


Columnist: Kwamena, Ato