OWN CORRESPONDENT, London | Monday 3.30pm
LONMIN Plc pitched a lower revised offer for Ashanti Goldfields on Monday in a move which analysts say underlines the hedging problems facing Africa’s third largest gold producer.
Ashanti said Lonmin has amended its offer to 16 Lonmin shares for every 27 Ashanti shares, down from the previous proposed ratio of 32 to 43.
That values Ashanti at around $665-million, or $5,95 a share, against the previous offer from Lonmin — which already owns 32% of Ashanti — worth $7,5 per share.
”It’s a better price for Lonmin shareholders, but obviously if you are lowering your offer it tends to suggest you think there are some underlying problems,” said one mining analyst at a United States investment bank.
The new offer also includes $100-million additional financing for capital expenditure on the Tanzanian Geita project and a warrant worth one tenth of a Lonmin share, or $1, if gold averages at least $325 per ounce over three years.
But analysts said these two items are largely ”red herrings” since the cost of developing Geita is well known and the timescale on the warrant makes it of limited value.
A second analyst, who also requested anonymity, said the reduced all-share offer simply highlights the problems of valuing Ashanti, less the liability of its hedge-book losses.
”Anyone taking on that company would want to neutralise or sterilise that hedge and there’s going to be a cost associated to that,” he said.
”I suspect they have to satisfy themselves they’ve got $150-million to $200-million and that’s basically the difference between the first and second offers.”
Ashanti faces a liquidity crisis after being caught out by a sharp rise in bullion prices which turned its gold hedge position from a profit into a loss, entitling its counterparties to margin calls of $270-million at a gold price of $325.
Analysts said there would be no shortage of buyers for Ashanti’s assets if the Lonmin bid collapsed and the company had to be broken up.
AngloGold Ltd, the world’s biggest gold producer, has long coveted Ashanti’s rich gold mines while Barrick Gold Corp is seen as particularly keen on Geita. — Reuters