Newcrest-Lihir create new mining behemoth

Newcrest Mining agreed to buy Lihir Gold after raising its cash and stock bid to A$9.5 billion ($12 billion) to create the world's fifth-biggest producer of the metal.

The bid values Port Moresby, Papua New Guinea-based Lihir's shares at A$4.03 each, based on Monday's closing price, 6.4 per cent more than Newcrest's offer last month, the companies said.

Buying Lihir will give Newcrest chief executive officer Ian Smith mines in Papua New Guinea, Australia and Africa and boost sales by more than half. Gold has risen for six quarters, marking its longest rally since 1979 as investors purchased the metal as an alternative to holding currency.

"The merged entity will be a very large company by Australian standards and a very large gold company globally," said Prasad Patkar, who helps manage A$1.9 billion and holds Lihir shares at Platypus Asset Management in Sydney. "Unequivocally it's a good deal."

Newcrest, Australia's biggest gold company, fell 3.2 per cent to A$31.02 during trading time on the Australian stock exchange, in line with other mining stocks amid concern a new tax will cut earnings. Lihir rose 4.9 per cent to A$3.85.

Lihir has gained 27 per cent since March 30, the day before the takeover was announced. Lihir rejected the April 1 offer, saying it was inadequate.

The deal has helped the combined value of takeovers announced this year in Australia in the energy and mining industries reach A$27.3 billion, Bloomberg data showed. That's the busiest start since the same period in 2008.

Lihir, the second-largest gold mining company on the exchange, can continue to hold talks with other potential suitors until June 8, the companies said.

Lihir appointed Macquarie Capital Advisers and Greenhill Caliburn to help study alternatives to the Newcrest offer, the company said on April 23.

Talks with other groups are "at various stages" and the company is providing information on its finances to all of them, Lihir chairman Ross Garnaut said. He declined to name the groups.

Newmont Mining may have held talks with Lihir, the Australian Financial Review reported on April 19, without saying where it got the information. Newmont and Barrick Gold might be potential bidders, the report said.

"The combined entity would be on the radar for other major gold miners," Platypus' Patkar said yesterday. "It's only a matter of time."

Newmont, the largest US gold producer, and BHP Billiton are among mining companies that may make acquisitions this year as higher metal prices buoy finances, Citigroup said last month.

Barrick, the world's largest gold producer, is targeting output of between 7.6 million ounces and 8 million ounces this year, it said in February.

Lihir has hired an independent expert to report on the bid and consider the possible effect of the proposed "super tax" on mining companies in Australia.

Treasurer Wayne Swan said on May 2 the Government plans to impose a 40 per cent tax on resource profits starting in 2012. The effect of the proposal on Newcrest will be limited, Smith said.

"The worst-case scenario, it has an overall net present value effect on us of about 5 per cent." The tax would likely be watered down before being passed into legislation.

Newcrest will cut its reliance on earnings from Australia to 52 per cent from 75 per cent under the proposed deal. Lihir, which has more than 97 per cent of its production outside Australia, will be unaffected by the new tax, Goldman Sachs JBWere said yesterday.

Newcrest's Smith last year outlined a five-year plan to boost output 40 per cent from its mines in Indonesia and Australia.

It approved last month the A$1.91 billion expansion of its Cadia Valley operation in New South Wales and said the company's full-year production may be at the lower end of its 1.81 million to 1.91 million ounce forecast.

The combined group would have sales of A$3.9 billion and production of 2.8 million ounces a year, it said, based on last year's figures.

- BLOOMBERG