| Thu 22 May 2003, 15:43 | | Ashanti and AngloGold have market abuzz |
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Ashanti and AngloGold have market abuzz
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With the merger talks possibly at a fairly advanced stage, gold analysts are busy thinking up scenarios
Resources Correspondent
THE Ashanti Goldfields-AngloGold announcement that they have been in talks about a possible merger has the gold industry buzzing thinking up scenarios on how such a deal might play out.
With the groups presenting ratios on which a deal may be based 100 Ashanti shares for 26 AngloGold shares analysts believe that talks are at a fairly advanced stage.
Lonmin, a London-listed platinum company, which has a 28% stake in Ashanti Gold fields, has also said that it had been in talks with AngloGold and Ashanti.
It is likely that negotiations between these three parties as well as the Ghanaian government are continuing.
The Ghanaian government has what is called a gold share in Ashanti, with which it could scupper any deal.
"Ashanti is a political hot potato," said one precious metals analyst.
The business logic behind a deal is clear, and many believe that such a merger would add value for AngloGold shareholders.
"The merger is something which on the face of it seems to have perfectly clear business logic to it," said Graham Birch, who manages about $1,5bn invested in the precious metals and the mining sector for Merrill Lynch in London.
"Ashanti is much smaller than AngloGold in every way. An acquisition would add ounces and production," said Birch.
If AngloGold and Ashanti did merge the new company would become the world's largest gold producer, he said.
How any deal would add to the value of the new combined entity is of vital interest to investors. However, it is the longer-term strategic political and corporate thinking behind such a deal that has got some analysts presenting complex scenarios as to how such a merger could play out.
There have been suggestions that any deal could be part of a strategy by Anglo American, which has a stake of more than 50% in AngloGold, to see some of AngloGold's gold assets moved out of SA, lessening Anglo's SA exposure. The thinking is that some Ashanti operations plus AngloGold's foreign assets and, perhaps, the best of its SA assets would be placed in a company listed offshore. Ashanti's main listing is in London.
The remainder of AngloGold's SA mines, with, perhaps, Anglo American's interest in Western Areas and Gold Fields, so the scenario goes, could then make up part of an empowerment transaction, creating a significant gold empowerment company.
Other analysts question this as they believe such a scenario would to be too complicated.
Another line of thought is based on the belief that Anglo American or AngloGold would not want to alienate the SA government or other African governments.
One analyst suggested that both the Ghanaian and SA governments might look on a merger of AngloGold and Ashanti as favourable in the context of the New Partnership for Africa's Development (Nepad) and the promotion of business across the African continent. "Rather than an escape strategy it could be presented as the companies embracing Nepad," said the analyst.
After all, AngloGold could bring the money needed to Ashanti to finance further expansions at the company.
Speculation aside, there is also the issue of price and the emergence of a possible counter bidder should an AngloGold/Ashanti merger proposal be formalised.
Any deal on terms set out by Ashanti last week (100 Ashanti shares for 26 AngloGold shares) would be a good deal for AngloGold, according to a number of analysts.
"The potential offer does look cheap on the basis of market capitalisation per resource ounce, but Ashanti's financial history has to be considered," said the analyst.
In any valuation Ashanti's relatively recent financial difficulties would have to be taken into consideration.
This story is only just beginning, and the market is now waiting to see whether or not a concrete offer is made.
It is then, according to Birch, that a competing bidder or bidders may emerge as it would be clear what they would have to come up with to top the AngloGold offer.
May 22 2003 05:47:40:000AM Julie Bain Business Day 1st Edition
Thursday
22 May 2003
