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28.09.2003 Business & Finance

Lonmin backs AngloGold bid

By Sunday Times
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Mining houses get ready to square up in the battle for Ashanti Goldfields, writes Hilton Shone Lonmin has offered its strongest support yet for AngloGold's takeover of Ghanaian producer Ashanti Goldfields, as the UK-listed gold producer squares up for a bidding war with Randgold Resources.

Lonmin holds 27.6% of Ashanti.

"While we will wait for the Ashanti board's position, we believe a combination with AngloGold is better for Ashanti as a company, for its shareholders and for Ghana, " said Lonmin chairman Sir John Craven.

Randgold launched an all-share offer for Ashanti earlier this week that valued the company at $1.5-billion, based on Friday's share prices. This topped AngloGold's bid, made at the beginning of August, of 26 of its shares for every 100 Ashanti shares, valuing the Ghanaian miner at $1.28-billion.

"Ashanti requires significant investment for the next several years. It is not manifestly apparent a combination with Randgold would significantly enhance the technical or financial resources for Ashanti to develop to its full potential," said Craven.

"Ashanti needs to be part of a large group with substantial financial and technical resources. Randgold doesn't meet those criteria. It's not a simple case of Randgold's bid being worth more than AngloGold in money terms.

"We're not interested in accepting an offer for a Randgold-Ashanti entity [and] would look to extract our investment [in Lonmin] for cash.

"We would be more comfortable in an AngloGold-Ashanti entity where we would hold 3.5% of the enlarged equity."

The 3.5% would compare with around 18% of Randgold-Ashanti. Craven said part of Lonmin's aversion to this bid was the likely difficulty in selling such a large chunk of shares.

An analyst, who did not want to be named, agreed. "Given Lonmin's stated intention to exit from the Randgold-Ashanti grouping, there is the real threat of a share overhang," the analyst said.

Lonmin came out in support of AngloGold shortly after the company made its offer, but Craven's latest comments will presumably not have gone unheeded in Ghana, where the government holds a 16.9% stake and, crucially, has a "golden share", enabling it to veto any merger.

Ashanti was part of the Lonrho stable under Tiny Rowland until a military coup in 1972 when the new Ghanaian government acquired 55% of all mining companies by decree.

Lonrho, which demerged its African businesses in the mid-1990s and in 1999 changed its name to Lonmin, had since sold its local coal and Zimbabwean gold operations and, apart from the Ashanti stake, is a pure platinum group metals company.

Lonmin paved the way for Ashanti's listing on Ghana's stock exchange in 1994 by further diluting its holding.

Most recently it made a loan of 75-million to the company when the sharp rise in the gold price in 1999 wreaked havoc with its hedge book and brought it to the brink of financial ruin.

Ashanti has operations in four African countries and produced 1.55-million ounces of gold last year. T he jewel in the Ashanti crown is the Obuasi mine in Ghana, which accounts for about one third of the group's output and more than half of its 22-million-ounce reserves.

Obuasi, though, was coming to the end of its life at current underground levels and a massive capital programme was required to secure the mine's future as a deep-level operation.

In addition to the merger price tag, AngloGold was committed to ploughing a further $290-million over the next five years into the recapitalisation of Ashanti's assets, while the mooted development of a deep-level operation at Obuasi would see a further 570-million investment.

Randgold planned to spend 340-million to develop existing reserves at Obuasi and $600-million for deep-level mining, including $170-million over the next 30 years.

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