AngloGold's deep pockets and skills base vital to deal
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Deep-level mining experience from SA will mean Obuasi's reserves probably can be accessed more quickly and efficiently
Resources Correspondent
ANGLOGOLD'S potential to fund the development of Ashanti's Obuasi Deep mine and its deep-level mining skills were key to Ashanti backing its offer for the company.
The Obuasi mine and ore body, being mined to a depth of 1500m, has reserves as deep as 3000m. AngloGold's deep-level mining experience means these reserves can probably be accessed more quickly and efficiently as part of a combined AngloGold and Ashanti.
"The immense technical and financial strengths of the new group will enable the realisation of the full potential of the Obuasi mine in the shortest possible time," said Ashanti CE Sam Jonah.
Bobby Godsell, CEO of AngloGold, said that in the next five years it was expected that about 44m would be spent on exploration at Obuasi, while operating costs could be cut by $20 an ounce of gold produced. AngloGold estimates total capital expenditure for Obuasi Deep for its life until 2040 and beyond at $570m.
The new company plans to invest another $110m over the next five years in equipment, infrastructure and environmental projects at Obuasi on top of what Ashanti had planned to invest in the mine's development.
Godsell said: "One of reasons that makes us natural partners is development of Obuasi a scoping study is under way. We intend to put a feasibility study in place."
Obuasi is not the only potential growth area for a combined AngloGold and Ashanti. The company will also have increased brown-field exploration potential in other areas across the company's widely spread asset portfolio.
Godsell said AngloGold Ashanti would have six operations with lifespans of more than 15 years in five countries.
Diversification of AngloGold's asset portfolio would be a plus for the combined company. It would have 24 operations in 11 different countries.
One analyst said scale mattered when it came to gold companies. He said the new company would have a good spread of assets combined with new reserves, making the transaction a "favourable" one for both companies involved.
AngloGold Ashanti would bring AngloGold additional reserves, adding Ashanti's 22- million ounces of attributable proven and probable reserves to AngloGold's 71,2-million ounces.
AngloGold and Ashanti have been partners for some time at Tanzania's Geita gold mine.
Jonah said that because the groups knew each other well and how they operated, he expected no major issues around the gelling of different company cultures.
For those troubled by what has been labelled by some investors as "South Africa risk", the combined company's production outside SA would increase.
"Under 40% of the combined company's production would be in SA," said the analyst.
The business logic is compelling, but the merger of the two companies would leave the new AngloGold Ashanti with a large hedge book.
AngloGold has a policy of hedging no more than 30% of total production over five years. The combination of the AngloGold and Ashanti hedge books would see this increase to 39% of total production over five years.
AngloGold said the new company would continue to reduce its hedge positions.
Aug 06 2003 08:10:02:000AM Julie Bain Business Day 1st Edition
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