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Lonmin digs for Ashanti
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October 5, 1999: 8:15 a.m. ET
U.K. company in talks to buy remaining 68% stake of Ghana gold miner
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LONDON (CNNfn) - British mining company Lonmin and Ashanti Goldfields Co. of Ghana said Tuesday they are in talks that could result in Lonmin buying the 68 percent of the Ghanaian gold miner it doesn't already own.
Ashanti, whose stock is traded in New York, London and the Ghanian capital of Accra, saw its shares shoot up nearly 21 percent in London Tuesday to $10.375. That represents a more than 70 percent jump from lows this summer of just below $6 a share when tumbling gold prices dented the entire industry.
The precious metal has since staged a comeback, rising to more than $330 an ounce from recent lows of $252 an ounce amid vows by European central banks to limit annual gold sales.
Lonmin (LMI) shares were up 2 percent at 654 pence in London. Based on Tuesday's stock price, analysts said, Lonmin's purchase of the remaining Ashanti share stake could be valued at 660 million pounds ($1.09 billion).
Lonmin, formerly a conglomerate of about 600 mining companies in 50 countries known as Lonrho, has shed most of its mining businesses to focus on a handful of core assets in sub-Saharan Africa.
Besides the 32 percent Ashanti stake, 73 percent of a platinum subsidiary, Lonrho Platinum, and 67 percent of the coal operations of Duiker Mining in South Africa.
But the government of Ghana, Africa's second-ranking gold producer after South Africa, holds a 20 percent "golden share" stake in Ashanti and its approval is crucial to any deal.
Roger Chaplin, an analyst at T. Hoare & Co. in London, said Lonmin made a calculated decision to buy the rest of Ashanti after concluding that it wasn't getting a big enough return on the minority stake it already held. The 32 percent holding, valued at around 200 million pounds, yielded a dividend of just over 1 percent, Chaplin said.
"As far as Lonmin was concerned, they effectively had two options: either go for 100 percent ownership, or sell the stake in its entirety," said Charles Kernot, a mining analyst at Paribas in London. "Sitting with 32 percent was falling between two stools. Given the very low Ashanti share price they decided to jump."
Kernot said a deal between the companies would be "very good" for Lonmin, providing it with 100 percent of cash flow from a major African miner that is not bound by many of the intra-African trading restrictions that would apply to outsiders.
The only operations in which Lonmin already has 100 percent ownership are nine gold mines in Zimbabwe that have recently run into problems, analysts said.
Ashanti mines for gold or has exploration projects already underway in 13 African countries, with the brunt of its operations in Ghana proper. The company has 23 million ounces of proven or "probable" gold reserves, though that may expand as the company prospects along vast gold belts in sub-Saharan Africa.
Analysts say a merger would yield a leading African miner of gold and platinum, with a formidable presence in coal mining as well.
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