Ashanti Goldfields, Ghana's largest company, said merger talks with AngloGold were continuing as it reported a 61 per cent fall in first-quarter profits and said it held little hope for a second-quarter recovery.

Ashanti said the government of Ghana was seeking advice on the proposed merger and meanwhile the company had decided not to proceed with a planned rights issue.

Pre-tax profits fell from $18m to $7mon turnover down at $129m from $137m while production dropped 7 per cent to 380,929 ounces. The company attributed the weaker performance to a number of factors, including a delay in plant commissioning, lower grades, and higher fuel prices.

Cash operating costs rose to $224 an ounce from $190 a year before.

Although much of Ashanti's production is hedged, higher spot prices did help by allowing restructuring of the hedge book, improving the committed price by $11 an ounce.

In Ghana, Ashanti saw output fall at Obuasi and Iduapriem/Teberebie and Bibiani. In Zimbabwe, the Freda-Rebecca operation had sharply lower output not only because of lower grades but also lack of foreign exchange to buy spare parts. The company said "the release of hard currency is slow and could impact on the production recovery plan".

Second-quarter output is expected to come in slightly lower than for the first quarter, as previously announced. This is due to the commissioning delay at Iduapriem/ Teberebie and could be exacerbated by power shortages and other factors. However, the company still aims for full year production of 1.6m ounces. With dollar depreciation and rising prices of inputs, Ashanti forecasts full year cash operating costs coming in 10 per cent up on last year.

The proposal for Ashanti to merge with Anglogold would provide 26 Anglogold shares for every 100 Ashanti shares.