ASHANTI: Creditors agree to standstill

Ashanti, the Ghanaian gold mining group struggling with acute liquidity problems because of the unexpected rise in the gold price, yesterday won a stay of execution from its creditors, reports today's Financial Times

Late last night the company announced that the 17 banks with which it transacts its derivatives business have agreed to a standstill.

It followed a day when the share price in New York, which had tumbled from $10 to under $6 the previous day, fell below $4 before the shares were suspended.

During an unspecified period - which is understood to be some weeks - the banks will not enforce their right to demand cash deposits totalling $250m to $270m. The standstill is intended to give the company time for a "managed workout of the situation".

The company said talks with Lonmin, the group formed from the rump of the Lonrho conglomerate, were continuing, and last night Ashanti said the Ghanaian government would vote in favour of a merger.

Ashanti's 10m ounce hedge book consists of derivatives - gold forward contracts and options - designed to protect profits against a falling gold price. When the gold price suddenly reversed, jumping by $70 in four trading days, the hedge book became a liability rather than an asset.

During a conference call with investment analysts, Ashanti revealed that its hedge book now has a replacement cost of $572m. That represents the cost of replacing the whole portfolio in today's market conditions.

If the banks enforced their right to demand additional deposits they would total $250m/$270m, based on a gold price of $325 per ounce. If bullion rises the deficit on the hedge book and the amount of the margins would also rise.