Lonmin Trims Ashanti Offer On Hedge Woes

By Ben Hirschler and Nicholas Kotch

LONDON (Reuters) - Lonmin Plc pitched a second and lower offer for Ashanti Goldfields Co Ltd Monday in a move which analysts said reflected the hedging problems closing in on Africa's third largest gold producer.

Voicing its surprise, Ghana's Ashanti said Lonmin had amended its offer to 16 Lonmin shares for every 27 Ashanti shares, down from the previous proposed ratio of 32 to 43.

That values Ashanti at around $665 million, or $5.95 a share, against the previous offer from Lonmin -- which already owns 32 percent of Ashanti -- worth $7.5 per share.

``It's a better price for Lonmin shareholders, but obviously if you're lowering your offer it tends to suggest you think there are some underlying problems,'' said one mining analyst at a U.S. investment bank.

Ashanti's senior spokesman in Accra, James Anaman, said the company was puzzled by the lower offer.

``There is a gap in the valuation that we have to sort out...We are looking at that critically and we have other possibilities alongside this one that we are assessing,'' Anaman told Reuters in London by telephone.

AngloGold Ltd, the world's biggest gold producer, has long coveted Ashanti's rich gold mines while Barrick Gold Corp is widely seen as interested in the Geita gold project in Tanzania.

``RED HERRINGS'' IN NEW OFFER?

Lonmin's new offer also includes $100 million additional financing for capital expenditure on Geita and a warrant worth one tenth of a Lonmin share, or $1, if gold averages at least $325 per ounce over three years.

But analysts said these two items were largely ``red herrings'' since the cost of developing Geita was well known and the timescale on the warrant made it of limited value.

A second analyst, who also requested anonymity, said the reduced all-share offer simply highlighted the problems of valuing Ashanti, less the liability of its hedge book losses.

``Anyone taking on that company would want to neutralize or sterilize that hedge and there's going to be a cost associated to that,'' he said.

``I suspect they have to satisfy themselves they've got

$150-200 million and that's basically the difference between the first and second offers.''

ASHANTI SHARES AT DISCOUNT

Shares in Ashanti in London remained at a hefty discount to even the revised Lonmin offer Monday and were quoted at $4.525 at 1130 GMT following a retreat in New York Friday. Lonmin dipped five pence to 600p.

Ashanti faces a liquidity crisis after being caught out by a sharp rise in bullion prices which turned its gold hedge position from a profit into a loss, entitling its counterparties to margin calls of $270 million at a gold price of $325.

The counterparties have agreed a short-term standstill on margin calls which are being rolled forward on a weekly basis.

That temporary standstill, which ended formally on October 11, was extended until midnight on October 18 and Ashanti is currently in intensive discussions with the counterparties and its banks to extend the breathing space further.

Anaman said although the end of the standstill was ''imminent'' it was still possible for talks with the counterparties to be concluded. He said if a deal were struck with Lonmin the new company would be called Ashanti Plc.

The Lonmin offer is conditional on approval from the government of Ghana, which has a stake of 20 percent and a veto vote in Ashanti, and on a long-term standstill on Ashanti's outstanding obligations.

Ashanti said it expected to make a further announcement later this week when it announces its third quarter results.

It is Ghana's biggest company by far and the possibility that it will fall into foreign hands is a sensitive political issue for President Jerry Rawlings.

Rawlings sacked the former mines minister last week after he spoke out of turn and backed Lonmin's bid. The new acting minister, Ekwow Spio-Garbrah, was briefing the West African country's government on the latest offer.