Don''t be afraid, bugs -- the central banks don''t really have the gold

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By James Regan
Reuters

KALGOORLIE, Australia, Aug. 5 -- South Africa's AngloGold
Ltd said on Tuesday it was likely to act fast to reduce
Ashanti Goldfields Ltd's gold hedge book if it succeeded in
buying the Ghanian mining house.

Ashanti's hedge book brought the company to the financial
brink in 1999 when bullion prices unexpectedly leapt, leaving
it committed to buying high and selling low through a
complex options structure.

Ashanti has since simplified its hedging, with some 6.4
million committed ounces, but still shows an unrealised loss
of $108 million.

quot;We would be likely to move quickly to reduce their hedge
book, as we are doing with our own,quot; an AngloGold
spokeswoman told Reuters.

AngloGold earlier said Ashanti's top shareholder agreed to
support its $1.1 billion acquisition of the African mining
company, though the transaction's fate still rests with the
government of Ghana.

The merger, formally unveiled on Monday in New York after
being publicly proposed in May, would, if approved, bring
AngloGold neck-and-neck with rival Newmont Mining Corp.
as the world's top gold producer. It would also bolster the
company's long-term reserves by more than 30 percent.

Once one of the world's most-hedged gold miners,
AngloGold has been reducing its own hedge book in order
to gain more exposure to the market price of gold, which
has climbed 10 percent in the last 12 months.

Hedging involves selling yet-to-be-mined nuggets at a preset
price. The tactic protects miners when prices fall, but can
backfire, as was the case with Ashanti, when gold goes up.

AngloGold removed about 800,000 ounces of gold from its
hedge book in the last quarter, leaving it with 8.3 million
ounces pre-sold and it was continuing to unwind its
positions, the spokeswoman said.

AngloGold's board recently reduced the maximum level of
hedging the company may hold to 30 percent of the next
five year's production from 50 percent previously.

Lonmin Plc, a 27.6 percent stakeholder in Ashanti, pledged
to vote in favour of the transaction, which would pay Ashanti
shareholders 0.26 of a AngloGold share for each share they
own.

Ashanti's board has also approved the deal, but the
companies now must await a ruling from the Ghana
government, which owns a 17 percent stake in Ashanti as
well as a golden share giving it the ability to veto a
takeover of the company.

Combined, AngloGold and Ashanti produce about 7.3
million ounces of gold annually -- a level matched only
by Newmont.

AngloGold shareholders would own 87 percent of the
combined company, and the company's board has agreed
to recommend a name change to AngloGold Ashanti Ltd.
should the deal be completed. AngloGold's top shareholder,
Anglo American Plc, has agreed to support the name change.