Gold mines

PORTFOLIO JOHN BULL

Last Friday, the day upon which I recom- mended British Petroleum at 103s 3d as a good gamble on the possibility of finding oil in Alaska, the company announced that it is mounting an intensive drilling programme in the area. The shares obligingly went up by 4s on the news and there has been persistent American buying since. British Petroleum has, it will be remembered, extensive concessions very close to the strike already made by Atlantic Richfield and Humble. Now it has decided to fly in two drilling rigs towards the end of the year. It already has one rig in the area which is waiting for the 'freeze up' before it can start work. If BP finds oil in any quantity, its shares could move ahead very fast because the profit margins on North American crude are extremely high.

Gallaher, now under the control of American Tobacco (67 per cent stake), has produced some encouraging figures for the third quarter of the year. They reinforce my view that the shares are cheap at present levels. The position is that Gallaher forecast some weeks ago that profits this year would reach £16.75 million before

tax. In the third quarter pre-tax profits amounted to £4.9 million, leaving it with only £4.4 million to go to reach its target. In fact it looks as if the actual result could be profits of over £17 million pre-tax and more next year with the full benefits of the increased price. The shares are selling at no more than twelve times earnings, which compares with a tobacco in- dustry average of 14.4. Given the benefits which will come from the American Tobacco link, Gallaher deserves better. Meanwhile, of course, I shall hang on to my shares.

Lonrho, in which I have recently taken an interest on account of its platinum plans, is now bidding £15 million for the richest gold mine in the world, Ashanti Goldfields in Ghana. The key to this deal is that while Lonrho has obtained the goodwill of the Ghana govern- ment, Ashanti Goldfields seems to have lost it.

This is well brought out by the Ghana government statement: 'The Ghana govern- ment, having recently invited Lonrho to under- take an economic feasibility study of the state gold mines and also take a direct interest in the operations of the mines, welcomes the fact that Lonrho is now taking steps to acquire control of . . . Ashanti Goldfields.' Ashanti has a seventeen year lease on the mine, which judging from the Government statement, is unlikely to be renewed. The company has also found itself faced with higher and higher tax bills. So I suppose it boils down to this: Lonrho is making a bid (20s a share against a market price just before the announcement of 16s 1-1d) which it hopes Ashanti dare not refuse. And if Lonrho can pull the thing off, it has some clear advantages for shareholders.

Another of my companies has been active in the takeover field—Associated British Foods. The news of its agreed bid for the broiler chicken business, Allied Farm Foods, actually put the shares of AB Foods down a bit. This is a

Valuations at 23 October 1968 First portfolio

100 Empire Stores at 78s xd £392 125 Phoenix Assurance at 34s 3d £214 100 Unilever at 74s 6d £372 £2,000 War Loan at £47+ £955 330 Witan at 22s 24d .. £366 250 E. Scragg at 33s 3d £415 50 Barclays Bank at 79s 3d .. £198 100 National and Grindlays Bank at

63s 3d £317 500 Clarkson (Engineers) at 18s 9d .. £469

60 Rio Tinto Zinc at 128s xr

£384 1,000 Associated British Foods at 12s 9d £637 1,000 Jamaica Public Service at 6s 3d .. £312 250 Associated British Picture at 43s 9d £547 Cash with local authority at 7 per cent £1,093 £6,671

Deduct: expenses £169

Total £6,502 Second portfolio 600 Pillar Holdings at 14s 3d £427 500 Negretti and Zambra 'A' at 12s 6d £312 410 Gallaher at 30s 6d xd £625 15 Kaiser Steel at £39 £585 250 Lonrho at 38s 3d £478 100 British Petroleum at 108s 3d .. £541 Cash in hand .. £2,456 £5,424

Deduct: expenses £122

Total £5,302

common short term reaction, based in this case on the possibility of some selling of the new AB Foods shares by speculators who have been in Allied Farm hoping for a bid, and by any instittitiens owning Allied Farm which have already got a substantial holding of AB Foods. The commercial point of the deal is that Allied Farm fits conveniently into the group's existing operations, which include eight animal feed- stuff mills as well as broiler chicken interests— and its chain of Fine Fare supermarkets.