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Man armed with cream pie was NOT Bill Murphy
Noon EST Sunday, February 13, 2000
Dear Friend of GATA and Gold:
Gold continued to break into the mainstream financial
press today thanks to a huge article in the Sunday Mail
in Britain, accompanied by two photographs, about the
crisis at Ashanti Goldfields. (The article quotes GATA
Chairman Bill Murphy.) GATA considers the Ashanti
problem extremely bullish for gold and the publicity
about it even more so.
The Internet URL link for the Sunday mail story is:
But I'm including the whole story below.
Please post this as seems useful.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
GOLD GAMBLE LEAVES
MINER IN DEEP HOLE
By Matthew Fletcher
Sunday Mail, Britain
Sunday, February 13, 2000
The price of gold has made a surprise rally lately, yet
one of Africa's premier miners, Ashanti Goldfields, is
facing an uncertain future.
Shareholders in Europe and America have launched court
actions to oust senior executives from the company,
which is based in Ghana but quoted in London.
They blame the board for presiding over a complex
financial strategy that has left the company with
liabilities estimated to be as much as $450 million
(280 million pounds) and on the brink of collapse --
just as the gold price appears to be recovering after a
Last week gold hit $312.7 an ounce, the highest since
October. It hit a 20-year low of $252.8 last July.
Ashanti was holding emergency talks with its
shareholders and creditors last week to find a way out
of the problems that came to light last October.
Analysts also warn that other mining companies could be
facing similar problems. quot;There may be several other
Ashantis waiting to happen, which could set off a chain
reaction in the market,quot; says Bill Murphy, a Dallas-
based commentator on financial markets.
Ashanti's problems arose because it made a wrong bet on
the price of gold. Believing that it would continue to
slip because of selling by European central banks and
the International Monetary Fund, it borrowed 10 million
ounces of bullion from central banks and sold it on to
protect against a further drop in gold prices.
Instead, the price recovered on renewed buying from
investors and consumers in Asia. At the same time, the
central banks also agreed to scale down their sales,
which shored up prices.
The trouble was that Ashanti was unable to meet its
commitments to replace the gold it borrowed.
Analysts believe that a dozen bullion banks, which
acted as middlemen when Ashanti borrowed the gold, want
it replaced now because they too are losing out from
the rising price.
quot;These banks want to stop their losses getting any
bigger. The effect on the gold price could be
explosive,quot; says Murphy.
Ashanti Goldfields is one of Africa's top producers,
with some of the lowest-running costs in the world. It
counts among its shareholders the UK mining and metals
company Lonmin and the government of Ghana.
Unsurprisingly, its problems have caused political
controversy in the country.
If Ashanti collapses, gold prices could soar because
production from its mines would be hit and the bullion
banks would be forced to buy in the market. It could
also cost thousands of jobs in Africa.
The rally has left Ashanti facing demands from bullion
banks to pay the $150 million in deposits that it was
required to stump up if the value of its quot;hedgequot; book
-- the bets against movements in the gold price -- went
into the red.
The banks, which have so far suspended their demands
for repayment, have until next Thursday to decide
whether to suspend them further. However, they will
face even bigger losses if Ashanti collapses, and so
are unlikely to demand payment yet.
But Ashanti has faced a rear-guard action from
shareholders unhappy that bad management led the
company, under chief executive Sam Jonah, into trouble
in the first place. They want new blood at the top, and
Last Wednesday a Ghanaian court gave the green light
for an extraordinary general meeting to decide the fate
of board members, particularly finance director Mark
quot;This is primarily a corporate governance issue. We are
determined to see change quickly for the benefit of all
investors,quot; says Michael Martineau of Adryx Mining,
which represents a group of disgruntled shareholders.
Meanwhile, big international investors and central
banks are being forced to reassess whether they should
retain their gold reserves, long seen as a safe store
of value against inflation.
With the spectre of inflation tamed, they have been
offloading the metal and investing for better returns.
Market watchers believe the gold price has rallied
recently because major producers, including Canadian
miners Placer Dome and Barrick Gold, are abandoning
hedge strategies that counted on a fall in the
The vote of confidence in gold has bolstered the price
but perplexed many analysts. quot;It is a crazy situation
when you have central banks acting as sellers and
producers effectively buying gold,quot; says Andy Smith, a
respected London-based gold analyst at Mitsui Bank.
The fallout from Ashanti could add upward pressure on
the price. And with the company's future in the
balance, and fears mounting that Ghana may even
consider renationalising the company and walking away
from its commitments, some believe the bullion banks
are desperate to cut their losses and buy back gold to
cover their positions before the price rises higher.
Not everyone is so sure. Mitsui's Smith believes that
several of the banks have already been reducing their
exposure to Ashanti.
quot;The belief that Ashanti still has a huge skeleton in
its cupboard has been buoying the gold price recently.
But once it emerges that this not the case, a cold dose
of reality will hit the market,quot; he says.
Whatever the outcome, gold investors are likely to face
a rollercoaster ride in the next few weeks.