Ghanaian gold producer Ashanti [ASL] opened a door and promptly closed it. It has restructured its sizeable debt by extending maturity dates, converting some of it into equity and removing the effective change of control veto held by the original bondholders. But the measures don't make Ashanti any more attractive.

There has been a good deal of speculation that Ashanti would be the next logical target for AngloGold [AU] after it failed to acquire Normandy [NDY], but it could be a target for any producer. Buyer interest was predicated on an easing of the Ghanaian government's golden share option and the resolution of the debt which matured in 2003. There has been progress on both fronts, but Ashanti's attractiveness has narrowed even if it has improved - there is less chance of the Normandy bidding war template that shareholders relish.

The bondholders, including the leading bullion banks and apparently one or two of the big producers, turned the screws on Ashanti knowing that the 2003 deadline offered no wiggle room. Ashanti lives on, just.

Of the $218.6 million that is outstanding on the 5.5 per cent 2003 notes, one quarter was redeemed via the issue of 14.8 million new shares at $3.70, or a total of $54.6 million. That is a fine price for Ashanti shareholders who have the gold price to thank for driving up the exchange rate. Not that the note holders feel hard done by since Ashanti peaked at $4.25 a few days ago.

The pain comes from the remaining $163.4 million that has been converted into 7.95 per cent notes due in 2008 that must be repaid twice a year with $12 million installments. That's a straight arm to the throat in the current interest rate climate. On top of that the existing bondholders get paid 2 per cent, or $4.4 million, to switch to the new instruments. What price margin calls mixed with hedging.

Some salve is applied through reasonably generous options on the notes though and that should set a higher base for Ashanti stock. The bondholders have the right to convert their notes into equity provided they pay the higher of $5.03 per share or 125 per cent of the ASL price for the next 30 days.

The takeover game

The way the market is shaking out at present doesn't suggest there will be a conversion. Anyway, the bonds are a great bargaining chip since Ashanti is in play as a consolidation target.

The primary lesson from the Normandy battle is that AngloGold should have been buying shares at market prior to making its bid, at least up to the 5.49 per cent that is allowed before an announcement must be made. Newmont's [NEM] guaranteed option on Franco-Nevada's [FN] one fifth of Normandy was decisive in securing victory. Harmony Gold [HGMCY] has done exactly the same thing by buying a chunk of shares off market as a way to fend off rivals in its bid for Hill 50 [HFY].

Consequently, whichever producers and institutions are holding onto Ashanti equity and debt will have a key role in the unfolding effort to consolidate it. It could also put potential predators off unless they are confident of being dealt in on one of the holdings ala Franco to Newmont otherwise it would just be too expensive to make an unsolicited offer. There again, Franco got two pounds of flesh for putting up its Normandy stake and an imitator would want the same value realization.

While AngloGold has been touted as a buyer, it has never expressed much interest in Ghana. It does have a difficult to exercise pre-emptive right to the superb Geita deposit in Tanzania of which it already owns half. AngloGold is likely interested in full control of the mine, but the note holders have moved to prevent an asset strip by securing the right to be repaid 102 per cent of the value of the outstanding value of the bonds.

Excising Geita, or any other asset, will be all but impossible because it would trigger hefty bond redemptions dwarfing the asset price.

The picture is not especially better for the whole company. The same redemption rights, and accrued interest, are available on a change of group control. As a result Ashanti's valuation is pushed up significantly. The imputed enterprise to earnings ratio leaps into the mid twenties, riding shotgun with Barrick [ABX]. Barrick is not the highest rated by any means at the moment, but compare the asset quality, and the par valuations should more than raise an eyebrow.

A takeover could still be accretive to some buyers except the most obvious one - South Africa's Gold Fields [GOLD]. It has a clear interest in Ghana, primarily through the Damang Mine, and Ashanti would be a good fit. But Gold Fields trades at a rating a third lower than Ashanti's imputed value after the restructuring.

Current bondholders are left in the pound seats. Provided Ashanti keeps making money, and there is no indication that it will do anything else, they will make a fine profit. If there is a takeover bid they will do even better on the combination of cash and equity they now hold.

If Barrick and Placer Dome [PDG] are among the bondholders as rumours suggest, then they are perhaps best placed to make a move. Placer more than Barrick because its paper carries a rich rating and there's enough money in the bank.

However, it would have to prioritize and would probably not want to make a move lest it be caught napping in Australia which is its preferred destination for now. Also, adding more African assets to a portfolio already laden with South Deep is not going to help.

That leaves Barrick well positioned to make a play and then strip Ashanti to retain its portfolio composition. AngloGold deleveraging by selling its Geita stake to Barrick, which could keep the whole project to complement Buly, is perhaps not too far fetched. That would create room to sell the Ghanaian assets to Gold Fields.