Golden View from The Tower


2:30p EST Thursday, December 2, 1999

Dear Friend of GATA and Gold:

Here's an important story from today's Financial
Times examining the Ashanti Gold disaster and
particularly the role played by its banker, Goldman
Sachs, which helped put Ashanti in the soup and then
made a bundle bailing the company out, minus a good
deal of its innards. Note the interest ascribed to
the Bank of England and to all parties involved --
an interest in keeping the gold price down.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *


By Lionel Barber and Gillian O'Connor
The Financial Times, London
December 2, 1999

On Friday, October 1, a worried Mark Keatley,
finance director of Ashanti, the Ghanaian gold
mining company, flew from Accra for a crisis meeting
in London. Mr. Keatley knew his company was in
trouble, but he was about to discover that things
were a great deal worse than he had feared.

Mr Keatley was carrying a 3-inch stack of papers.
The papers summarised several thousand derivatives
contracts Ashanti had entered with 17 banks,
including Goldman Sachs, the company's main
financial adviser.

Six days before, the European central banks had
announced they were limiting sales and loans of
gold. The price of gold, which had been falling
steadily since spring, suddenly surged, rising from
$269 an ounce to $307 over the week.

On the face of it, a rising gold price should have
benefited one of the world's biggest gold producers.
But the papers Mr. Keatley was carrying told a
different story. For Ashanti, aided by Goldman, had
for months been placing a huge bet on gold prices
continuing to fall.

Ashanti was not the only one in trouble. Goldman
Sachs' multiple roles as corporate adviser to
Ashanti, seller of over-the-counter financial
derivatives, and trader in the bullion market were
about to converge in a way that was to test not only
the bank's expertise but its reputation.

The full extent of the crisis began to emerge that
Friday evening at Goldman Sachs' headquarters in
Fleet Street. With Mr. Keatley's agreement, Goldman
secretly ran Ashanti's trading positions -- over
2,500 in all -- on a computer model.

The results were shocking. Ashanti's "hedge book" of
derivatives contracts was deeply in the red. If the
17 banks that were its "hedge counterparties"
demanded the cash deposits they were entitled to,
Ashanti would go into default. Ashanti would also
squeeze the bullion market in closing all its
contracts because it would need to purchase gold.

Over the next few days, under the watchful eye of
the Bank of England, an extraordinary sequence of
events unfolded as the banks, led by Goldman Sachs,
sought to rescue Ashanti and prevent a crisis in the
bullion market. The effort was successful, but it
left lingering questions among rival banks in the
City about Goldman's role.

Ashanti was built up on the century-old Obuasi mine
in Ghana. In 1994 it became the first black African
firm to list on the London Stock Exchange. Thanks to
the charm and political connections of its boss, Sam
Jonah, the company expanded rapidly through
acquisitions in other African countries.

Goldman became the main corporate adviser to Ashanti
in 1996. Like other investment banks, Goldman
allowed the two sides of its operations -- the
private advisory arm and the public trading
operation -- to deal with the same client.

It imposed safeguards to prevent confidential
information passing across the "Chinese wall" from
private to public. This arrangement was subject to
constant monitoring by a "control room" of
compliance officers and corporate lawyers.

In the case of Ashanti, Goldman's special place in
the bullion market made these arrangements highly
complicated. Goldman sold a wide range of financial
derivatives to gold companies. It was the leading
member of a so-called "big four" of investment banks
with which Ashanti traded. The others were Credit
Suisse Financial Products, Societe Generale of
France, and UBS of Switzerland.

For Ashanti, derivatives were much more than an
insurance against a falling gold price -- they were
a source of profit and cash. This was important for
Ashanti, which had a heavily indebted balance sheet,
partly because it had been forced to borrow to
finance acquisitions rather than issue equity.

The main reason for this was that neither of
Ashanti's two principal shareholders -- the Ghanaian
government and Lonmin, the rump company originating
from Tiny Rowland's empire -- wanted to have their
stakes in the company diluted.

Sam Jonah boasted that Ashanti had "earned" more
than $700 million by using derivatives to make
forward sales of its future gold output. As long as
the gold price was falling, Ashanti was able to make
a profit from the gap between the current and future
price. By the middle of 1999, the company had "pre-
sold" some 50 percent of its reserves.

But when Europe's central banks intervened on
September 26, Ashanti's hedge book suddenly turned
from an asset into a crushing liability. And as its
derivatives positions spiralled into loss, its
counterparties started to demand cash deposits --
known as margin calls. At the end of June, Ashanti's
hedge book had a positive value of $290 million. In
early October, it was $570 million in loss, and
there were margin calls pending of $270 million.

The dramatic deterioration in Ashanti's financial
position was being closely watched by Goldman's
derivatives salesmen. But they did not know that
their colleagues in Goldman's advisory team were
also taking an active interest in Ashanti's affairs.

For over a year advisers led by Richard Campbell-
Breeden had been working on a possible merger
between Ashanti and its shareholder Lonmin. But Mr.
Campbell-Breeden had not yet fully grasped the
implications of Ashanti's financial hedging

"We thought that if the gold price went up it was
good for Ashanti because it enhanced its long-term
value," says Mr. Campbell-Breeden, "We did not
appreciate that it could produce a short-term
liquidity crisis."

The truth dawned when he was told of Ashanti's
looming cash crunch by Ron Beller, co-head of fixed
income, currency, and commodity sales for Goldman in
Europe. Mr. Beller told Mr. Campbell-Breeden that J.
Aron, Goldman's commodity trading subsidiary, would
soon have the right to make margin calls.

Mr. Campbell-Breeden immediately called Mr. Keatley
in Accra. Mr. Keatley assured him there was "no
margin problem." But three days later he called Mr.
Campbell-Breeden at 1 a.m. and modified his
position. There was indeed a margin problem, but he
insisted it was containable.

Later that day -- Thursday, September 30 -- Ashanti
issued a statement to the London Stock Exchange,
saying it had reorganised its hedge book. It said
the "management was satisfied that the hedge
portfolio is robust in the current gold market."

As the market absorbed news of Ashanti's problems,
Mr. Beller tried to stabilise the company. He
assured Ashanti and Mr. Campbell-Breeden that J.
Aron would temporarily waive its right to margin
calls. Mr. Beller then took on an additional role.
At Ashanti's request, he approached SocGen to inform
the French bank of Goldman's decision to waive
margin calls. At the same time, he informed SocGen
about the merger talks with Lonmin.

As Mr. Keatley prepared to fly to London, Goldman
was becoming entangled.

First, it was trying to prevent a client from going
bankrupt, with the risk of turmoil in the gold
market. Ashanti's heavy derivatives exposure made
the position more serious because other gold
companies could come under pressure.

Second, Goldman had to avoid the suspicion that it
would exploit its access to Ashanti's books in its
trading. Goldman admits this required "extraordinary
measures." Mr. Beller and a few Goldman traders were
operating full-time during the crisis on the
advisory side of the Chinese wall.

Third, Goldman had to reconcile its position as
corporate adviser with being Ashanti's principal
counterparty. The former role involved Mr. Beller
not only advising Ashanti and Lonmin on derivatives,
but acting as an intermediary with 16 banks. By its
own admission, Goldman found these multiples roles
extremely hard to manage. It created special
confidentiality agreements for several people from
Goldman's trading side before they were seconded to
Ashanti. It also kept the Bank of England informed.

Over the weekend of October 2 and 3, Goldman led
frantic efforts to sort out Ashanti's hedge book and
persuade the hedge counterparties not to make
immediate margin calls. There was a brief break from
negotiations on Sunday as some of those involved
watched a football match, in which Chelsea beat
Manchester United 5-0.

Linklaters, the law firm, helped in negotiations
with the "big four," some of which were wary about
agreeing to a moratorium on margin calls without
similar commitments from others. On Monday evening,
most counterparties met in Fleet Street. Others took
part by telephone. Later one executive from
Westdeutsche Landesbank was tracked down on his
honeymoon in Australia. He was told his bank had an
exposure of $3 million -- 10 times the amount he had

After agreeing to a series of temporary standstills
-- and after the appointment of CIBC in place of
Goldman as principal corporate adviser to Ashanti --
the 17 banks extended the moratorium to a three-year
margin holiday. But they extracted a price: the
right to acquire 15 percent of Ashanti's equity
through cheap warrants issued by an offshore
subsidiary of the company.

Ashanti was saved, although the Lonmin bid
ultimately failed because the Ghanaian government
was determined not to lose control. But one month
later, questions remain over the role of Goldman.
Many involved pay tribute to its skill in resolving
the crisis. But some rivals remain concerned about
Goldman's privileged access to information.

One complaint that went as far as the Bank of
England concerned a large trade executed by Goldman
in the middle of the crisis. Some rivals believe it
traded gold heavily at $325 an ounce in an effort to
extricate both itself and clients from derivative

Goldman agrees that it traded heavily at $325 on
Monday, October 4. But the bank insists it was
trading options on behalf of clients, rather than
spot trading for itself. Any information used for
trading was gained from its own exposure to Ashanti,
as well as market knowledge.

The bank says it offered to resign as corporate
adviser to Ashanti several times, but Ashanti
resisted. As a compromise, Goldman says it
encouraged Ashanti to appoint CIBC as its lead
financial adviser in charge of discussions with the
other banks, as soon as possible.

With hindsight, some Goldman executives admit that
some of the derivatives it sold Ashanti may not have
been ideal for a heavily-indebted company. But it
argues that the deals were "client-driven
transactions" -- the responsibility of Ashanti's

Wherever responsibility lies, the result is beyond
dispute. Ashanti is heavily in debt, and dependent
on the goodwill of its banks. In the words of one
person involved, the company is "a prisoner on the