ASHANTI HAS RESOLVED THIER HEDGING PROBLEM---------
and Barrick , Anglogold and co.. wont be getting Gieta!
This now makes Barrick refocus back to Pangea & MDN
What do you think?
(here is article:-----------------------------------------)
1. Ashanti Goldfields - Re Hedging Agreement, etc.
Ashanti Goldfields - Re Hedging Agreement, etc.
78% match; RNS ; 01-Nov-1999 07:57:29 am ; 1589 words
RNS Number:0270A Ashanti Goldfields Company Ld 1 November 1999
Not for release in the United States of America, Canada and Australia
Ashanti Goldfields Company Limited
Agreement Reached with Hedging Counterparties
Ashanti Goldfields Company Limited ("Ashanti" or "the Company") announces that it has reached an agreement with its gold hedging counterparties ("the Counterparties") which gives it a long-term exemption from the obligation to post collateral against margin calls on hedging contracts. In return for this benefit, Ashanti will issue the Counterparties with warrants ("Warrants") which convert indirectly into Ashanti ordinary shares of no par value.
Background
For over seven years, Ashanti has engaged in gold hedging operations designed to protect the cash flow from its gold mining operations from fluctuations in the price of gold. Ashanti's hedging activities principally involve long-term spot deferred forward sales, together with the use of option contracts. The contracts are written with leading international bullion banks.
Ashanti's hedging programme has provided it with enhanced gold revenues that have enabled it to pursue a successful programme of growth and strategic acquisitions, which have lifted group gold production from 700,000 ounces per year in 1992 to 1.6 million ounces per year in 1999. In total, the Company's hedging programme has realised cash inflows exceeding US$700 million over the past five years. As at 30 September 1999, Ashanti's outstanding hedging contracts covered approximately 10 million ounces of future gold production, representing approximately 38% of the Company's gold reserves as at 31 December 1998.
Ashanti's hedging operations have up to now been subject to margin limits with most of its Counterparties. Margin limits entitle the Counterparties to call for deposits from Ashanti ("margin payments" or "margin") in the event that the negative mark-to-market value of the contracts exceeds the margin limits. Ashanti's present margin limits total approximately US$280 million.
The rapid rise in the gold price in late September 1999 caused the negative mark-to-market value of Ashanti's hedge book to increase suddenly during the past month to levels that have significantly exceeded Ashanti's present margin
limits. This exceptional increase has exposed Ashanti to the risk of margin
calls which could far exceed the Company's available liquidity and threaten
its solvency. Since 5 October 1999, the Company has been operating under
short-term standstill arrangements with its Counterparties, under which the Counterparties agreed to temporarily waive their right to call for margin payments. These short-term arrangements have highlighted the need to reach a satisfactory long-term arrangement with its Counterparties.
Details of the Agreement with the Counterparties
Ashanti has signed an agreement ("the Agreement") with all 15 of its current Counterparties which, subject to the conditions described below, exempt it from any requirement to post margin on any of its hedge contracts for the next three years, up to 31 December 2002. Thereafter, for the calendar year 2003, Ashanti's margin limits will be twice the current levels (i.e. a total of about US$560 million); and for 2004, Ashanti's margin limits will be one and a half times the current limits (i.e. a total of about US$420 million).
In return, the Counterparties are being issued with unlisted warrants to subscribe for mandatorily exchangeable notes which exchange into Ashanti ordinary shares at a subscription price of US$4.75, equal to the closing price of Ashanti's shares on Friday, 29 October 1999. If exercised in full, the Warrants will convert into approximately 19.8 million Ashanti ordinary shares (representing approximately 15% of Ashanti's share capital assuming full exercise of the Warrants) and generate US$94 million in cash for the Company. The Warrants are being issued in three equal tranches having expiry dates of 4 1/2, 5 and 5 1/2 years from the date of issue.
The Board of Directors of Ashanti, which has been advised by CIBC World Markets, believes that the value of the consideration being given by the Company is appropriate for the long-term credit benefit being provided to the Company by the Counterparties. The Board further believes that the value of the consideration being given by the Company compares favourably with the cost of a credit line of sufficient size, flexibility and term to provide the equivalent benefit being given under the Agreement and with other alternatives such as a commercial insurance policy.
Conditions
Under the Agreement, Ashanti has committed to prepare a financial and operating plan by 2 December 1999 (or a later date, if agreed by the Counterparties), which must demonstrate to the satisfaction of its Counterparties that it has, and will continue to have, adequate financial resources for the conduct of its business going forward, and to also demonstrate the Company's sound long-term financial condition. The other conditions include obtaining confirmation of the renewal of banking facilities maturing during the present calendar quarter (principally the US$95 million Tranche A of Ashanti's Revolving Credit Facility) and making arrangements for the provision of sufficient new facilities to cover Ashanti's working capital and capital expenditure commitments. Once Ashanti has presented the plan in a form satisfactory to the Counterparties, it will then have a further period of at least three months to implement the plan. Only if these conditions are not satisfied, will margin free trading be withdrawn, the present margin limits reinstated and the Warrants cancelled.
Future Financing Plans and Corporate Development
Prior to the gold price rise, Ashanti was in discussions with a number of banks to secure further financing to complete the construction of the expanded Geita mine project in Tanzania. With the problems caused by margin calls on the hedge book, these discussions were placed on hold. The Geita mine is however, still on schedule to commence operations in the third quarter of 2000 and is expected to produce about 500,000 ounces of gold per year. The capital expenditure required to bring the Geita mine into production is estimated to be US$110 million, and the additional funding required for these and other purposes is approximately US$100 million. The Board of Ashanti is now directing its energies to secure this financing and to seek to obtain approval for the renewal of Tranche A of the Revolving Credit Facility. Ashanti believes that its existing lenders remain supportive. The Company has also received indications of interest from a number of other potential lenders.
Whilst during the last month Ashanti has received a number of proposals, including merger proposals from Lonmin Plc, and proposals for disposals and joint ventures, the Board considered that it must first stabilise the current position of the Company. The Agreement with the Counterparties has achieved this, and the solution has improved the margin position for Ashanti in relation to its hedge book for a number of years.
The Board of Ashanti is pleased that it has been able to agree a procedure with the Counterparties to resolve the liquidity crisis created by the potential margin calls in respect of the hedge book. In the current volatile gold market, the Board has been able to secure a solution which gives it immediate margin free trading which will continue until December 2002, and thereafter secures substantially increased margin free limits for a further two years, so long as it satisfies the conditions described elsewhere. The Company is also reviewing fully its hedging programme to reflect recent developments in the market.
Sam Jonah, Chief Executive of Ashanti, commented "We are pleased that we have reached agreement with our Counterparties that removes the uncertainty surrounding potential margin calls on the Company. In taking warrants in return for potentially much higher margin risk, our Counterparties are demonstrating their confidence in Ashanti's vision and capacity to deliver its future plans."
Ashanti will release its operating and financial results for the quarter ended 30 September 1999 on 3 November.
This announcement is not an "offer for sale" in the United States within the meaning of such term under the Securities Act of 1933, as amended, and the rules promulgated thereunder (the "Securities Act"). Securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act.
Certain of the statements made in this announcement are forward looking in
nature. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that will occur in the future. These factors include, but are not limited to, statements made elsewhere in this announcement. In addition, risk factors relating to Ashanti can be found in its public SEC filings.
Ashanti shareholders and other investors should note that the share price of Ashanti is likely to be affected by the issue of warrants, the operational results of Ashanti and the complex and interrelated political, economic, financial and other factors that can affect the capital markets generally, the stock exchanges on which Ashanti securities are traded and the market segment of which Ashanti is a part.
Any market that develops for the warrants is likely to influence and be influenced by the market for Ashanti ordinary shares. The price of Ashanti ordinary shares could become more volatile and could be depressed by investors' anticipation of the potential distribution into the market of substantial additional amounts of Ashanti ordinary shares following exercise of the warrants or by sales of Ashanti ordinary shares by investors who view the warrants as a more attractive means of equity participation in Ashanti and by hedging or arbitrage trading activity that may develop involving the warrants and the Ashanti ordinary shares.
Ashanti undertakes no obligation to update publicly any forward looking statements whether as a result of new information, future events or otherwise. Any statements should be evaluated in light of these factors.
Enquiries:
Ashanti Goldfields Company Limited
Mark B. Keatley, Chief Financial Officer (44) 171 256 9938
James K. Anaman, General Manager - Corporate Affairs (233) 21 778 178
Ernest Abankroh, Company Secretary (233) 21 774 977
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