Gold miner Ashanti Goldfields said on Wednesday its second-quarter profit fell 62 percent on the back of higher costs and lower output, but saw its performance improving in the months ahead.

The Ghana-based firm, in merger talks with larger rival AngloGold, said earnings before exceptional items for the second quarter to June 30 fell to $7.8-million from $17.8-million last year.

Ashanti, one of Africa's biggest miners, said its gold production in the second quarter fell eight percent to 370 978 ounces from a year earlier, even as cash operating costs rose to $222 per ounce from $192 on the back of the fall in production, higher wages and increased fuel and other input costs.

The firm, which operates six mines in four African countries, said in June it expected cash operating costs to rise by about 10 percent in 2003 and plans to raise production in the second half to meet its annual target of 1.6 million ounces.

Earnings per share before exceptional items fell 65 percent to six US cents from 17 cents last year.

Ashanti and AngloGold said in May they were in talks for a deal under which Ashanti shareholders will get 26 AngloGold shares for every 100 Ashanti shares.

But the deal, which will make AngloGold the world's largest gold producer, needs approval from the Ghana government, which holds a 17 percent stake in Ashanti including a golden share.

Ashanti said on Wednesday that Ghana had appointed a consortium led by French bank Societe Generale to advise it on the deal.

A source close to the talks told Reuters on Tuesday, however, that the government wanted AngloGold, a unit of mining giant Anglo American Plc, to improve the terms of its offer.

Ashanti's American depositary receipts closed nearly five percent lower at $8.27 on Tuesday.