AngloGold and Ashanti in merger discussions

AngloGold and Ashanti Goldfields said they were in talks for a merger which, if consummated, would create the world's largest gold producer as measured by capacity.

AngloGold, South Africa's largest gold miner and currently the world's second-largest, confirmed its board was in talks with that of Ghanaian Ashanti on a proposed merger at a ratio of 26 AngloGold shares for every 100 Ashanti ordinary shares or global depositary securities.

"These discussions may or may not lead to a proposal being made for the entire issued share capital of Ashanti," AngloGold's board said.

If completed, the merger would give the companies combined capacity of some 7.3 m oz, putting them on a par or slightly ahead of America's Newmont Mining, which expects to produce between 7.1 and 7.3 m oz this year.

The two African companies already operate a 50:50 joint venture at Tanzania's Geita mine. A deal would allow AngloGold to diversify away from deep-level mining and South African exposure.

AngloGold had been in the market for a partner since last year, when it lost a long and bruising battle for control of Australia's Normandy Mining to Newmont. "It makes sense," said James Wellsted, gold analyst with JP Morgan in Johannesburg. "It's probably a cheaper option for them than looking for growth in a place like North America or Australia, where the multiples are a lot higher than for Ashanti."

Lonmin, the London-based south African platinum company, also confirmed it was in talks with AngloGold concerning its 32 per cent share in Ashanti on Friday.

However, details of the planned deal are sparse. Analysts pointed to a possible risk factor in the Ghanaian government's ownership of a 20 per cent share of Ashanti, the country's largest company.

"There can be no assurance that an agreement will be reached," AngloGold said. "Consequently, shareholders of AngloGold are advised to exercise caution when dealing in relevant securities until a further announcement is made."

Ghana's government also has the right to veto the disposal of assets via its ownership of a "golden share" of the miner. However Sam Jonah, Ashanti's chief executive, told the FT earlier this year that if Ashanti wants a merger "the government cannot and would not interfere." AngloGold's shares closed at 233.8 rand on the Johannesburg Securities Exchange on Friday, down 4 per cent. The Ghanaian company's London-listed American depository receipts closed up 10 per cent at ?7.75.