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08.10.2003 Business & Finance

Ashanti doesnt need Batman - Bristow

By Mineweb
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NEW YORK -- The gloves have been off for some time in the Ashanti [ASL] bidding war and now it threatens to become a pro-wrestling smack down as AngloGold [AU] and Randgold [GOLD] move to clinch a deal.

“Ashanti isn’t broken. It doesn’t need Batman to swoop in and fix it with one billion dollars,” an ebullient Dr Mark Bristow said in a tart strike at AngloGold during a telephone interview with Mineweb from Ghana last night.

Randgold’s chief executive has been in the country courting the media, officials and anyone with at least one working ear for the past several days. The blitz included a town hall style meeting at an Accra beach hotel that was open to the public.

A small plane load of AngloGold executives is understood to be touching down in Ghana soon to do the same glad-handing run in the countdown to the Ashanti board’s recommendation to government, which has been slated for 15 October.

Both Randgold and AngloGold have been trying to establish themselves as the home town favourites in Ghana given the enormous nationalist baggage that comes with Ashanti. Each has latched on to the tremendous power of Ghana’s thriving media, affording the country’s journalists unprecedented access to their corporate talking points in the hope that they can mobilise “grassroots support”; as Africans are so fond of saying.

The respective African nationalist bromides can hardly be told apart, but Randgold has a small edge with its marketing message about a niche company. “Investors keep telling us they want choice in the gold sector. It would be a crying shame to see Ashanti disappear into a conglomerate. It is the only independent African business apart from Randgold Resources,” Bristow charges.

Indeed, it doesn’t take great insight to see that Randgold is selling itself to Ghana as the New South Africa whilst it makes every possible, but courteous, allusion to AngloGold’s Old South Africa pedigree. Such tactics do work.

“Ashanti has a good footprint into Africa; it will be the premier African business and it is hugely competitive. To suck it into a South African conglomerate at this point in time makes absolutely no sense whatsoever. We offer something utterly unique as a pure play African gold company with direct access to London and New York capital markets. Ashanti offers a special type of risk that you don’t see every day.

“How much more senior gold paper does the market really want?”

Meanwhile, AngloGold is still not budging on its offer which remains 10% shy of where Ashanti is presently trading and $220 million short of Randgold’s price. Jonathan Best, AngloGold chief operating officer, has said repeatedly that his company’s offer is full and fair though he will not rule out raising the price.

Bristow won’t leave it alone: “Our numbers are similar to AngloGold’s for the simple reason that they come out of Ashanti’s management,” Bristow says without a trace of irony. “We are thrilled that AngloGold recognised that we offer upfront value in our offer. That’s right. We bring Loulo, which is immediate growth, Tongon and then Obuasi [above 50 level]. Obuasi Deeps is a long-term project as even AngloGold now acknowledges.”

We continue to believe that AngloGold cannot avoid raising its offer if it wishes to buy the consent of the Ghanaian government and, in a populist sense, the goodwill of informed citizens. That is critical, but for what it is worth, it appears that Randgold’s message about giving current Ashanti shareholders a larger stake in a differently flavoured gold mining business has won over many minorities. During the interview and conference call, Bristow laid out Randgold’s position on key market worries:

Obuasi Deeps and fleet Randgold is sticking to its assertion that Obuasi Deeps cannot be developed in the near-term whilst the fleet can be recapitalised through a lease agreement.

“At least give current Ashanti shareholders majority participation in the project.”

Seiguri “There’s a lot of work to be done there before you make any rash commitments. It still requires a bankable feasibility study.”

Cash poor AngloGold has lasered the market onto the fact that after paying Lonmin’s mandatory notes, revolving credit facility, the golden parachutes and various transaction costs, Randgold’s treasury will resemble the Atacama Desert. Not so, says Bristow who prices the immediate cash out at $291 million. With available cash from Randgold and Ashanti plus a proposed new credit facility, Bristow believes the merged companies would have “head room” of $48-98 million.

“People think Ashanti is broken. It is not, just look at the cash it is generating to pay down its debt. It’s nonsense that you have to come flying in with buckets of money. Ashanti is not going out of business by any means,” says Bristow. “It’s not a case of us doing it any differently. We’re saying $342 million for the first two years which is similar to AngloGold.”

Meanwhile, the strong rand is not helping AngloGold’s cause.

Dividends “It is our intention to pay dividends and we hope to do it after three years.”

Balance sheet “You can’t raise capital in Africa, you have to go to international markets. So why go the long circuitous route of going via Johannesburg?”

Liquidity Much has been made of Lonmin’s publicly expressed desire to cash out of Ashanti. It can do so easily with AngloGold, but Randgold’s entry to the FTSE250 has made it a closer race with some beneficial permutations.

“Since we entered the FTSE, we’re averaging trade of 1 million shares per day and Ashanti has been doing the same. So, on a proforma basis the merged company could trade 1.5 million shares per day with a value of $35-40 million daily.

AngloGold has been trading roughly the same amount and that equates to about $55 million. That means Lonmin could trade out of its position in six days versus about eight with us,” Bristow says. Once Lonmin clears Randgold/Ashanti, there are additional tracker fund triggers to take up more stock. Debt Bristow says the market is comfortable that Ashanti’s debt situation will be resolved in the near term and largely through organic growth. Hedging “What do you get when you put two heavily hedged companies together? More hedging,” quips Bristow. “At least with us the hedging is diluted.” Raising the offer “It’s going to take something special, something significant to knock us out. $100 million [more from AngloGold] won’t do it.”

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