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Ashanti Goldfields Co. (ASL) Message Board

  • Jademann Jademann Feb 15, 2000 12:59 PM Flag

    ASL should not sell off any Geita IMHO

    The loan will help to get Geita online and this will be very good for ASL.

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    • Excerpted form ASL press release of

      "Potential Sale of Assets

      The Company also
      considered raising funds by the sale of assets. On account
      of restrictions in Ashanti's corporate loan
      covenants, this meant that the Geita mine in Tanzania was
      the most likely candidate for sale. However, the
      disposal of an interest in Geita at that time would have
      involved the sale of associated hedge contracts. This
      would have eroded the net cash proceeds receivable
      given that the mark-to-market value of the hedge book
      was a negative US$ 570 million. Taken together with
      the initial tax assessment on the sale structures
      proposed by the bidders, the net cash proceeds to the
      Company would have been approximately a quarter of the
      value of the offers. It quickly emerged that the sale
      of assets to solve the hedge crisis was not the
      optimal solution."

      I interpret this to mean that
      ASL would have to use much of the proceeds from
      selling off 1/2 of Geita to close out margin positions at
      a loss. Since ASL has already given up 15% of the
      company (in the form of warrents at about $4 / share) in
      exchange for margin free trading in their hedges for 3
      years, why would they want to close out the hedges now?
      It is good practice to never exercise an option too
      early and ASL has bought themselves 3 years of
      breathing room. So, of course ASL will try to hold onto to

      Remember that Geita has turned out to
      have about twice the gold reserves that ASL estimated
      when they purchased the property. In the past they
      have rationalized that if they sold 1/2 of Geita they
      would still be adding the same amount of gold reserves
      that they originally anticipated from the purchase of

      Final thoughts. If ASL went under and the
      government would nationalize the mines in Ghana, what would
      be the value of the remaining assets? Geita is $400
      MM alone.

      The above statement from ASL
      implies that the hedge positions may be tied to gold
      production from specific mines. The Ghana mines are
      nationalized. The hedge positions associated with those mines
      become the problems of the hedge counterparties. Left
      for the stockholders are the non-Ghana mines (Geita)
      and the non-Ghana hedge positions. As a wild idea,
      could it be conceivable that this liquidation could
      even be good for the stockholders?

      I also find
      it interesting that the mark-to-market value of the
      hedges remains at a negative $570 MM for the last few
      months. The price of gold has moved significantly and I
      can only assume that ASL has made some moves on their
      hedge positions, but the impact of the hedge position
      on ASL has always been this $-570 MM. Is it possible
      that they ran the computer program only once to
      determine their exposure? Or are they reluctant to get into
      the habit of routinely disclosing data and will use
      the last released number till someone hollars loud