Sydney view: Foreign eyes on glittering assets

By GILES PARKINSON

It may well be that all that glitters is gold, at least on the Australian Stock Exchange at the moment.

Australia's gold producers have experienced a volatile relationship with investors in the past few decades but are now enjoying something of a renaissance. However, it may not last long because most of the goodies will be in foreign hands soon.

The rationalisation of the Australian gold industry has been happening for several years. For a while it was easy. The gold price was wallowing and small Australian producers were not considered to be worth the effort of the big international resource groups.

The vulnerable made easy pickings for those making the effort.

Now the competition for Australian gold assets is fast and furious, underpinned by a desire for relatively low-cost producers and by the sharp rise in the gold price that followed the uncertainty in financial markets after September 11.

The change in market dynamics is typified by the experience of Delta Gold and Goldfields, two mid-range Australian producers with extensive interests, mainly in Western Australia.

Shortly after September 11, the two miners unveiled a merger plan that had been under discussion for several years. The combined value of the two companies was put at A$825 million ($973.48 million).

This week, not even six months after the merger was completed, Canadian giant Placer Dome emerged with a scrip-based bid of A$2 billion for AurionGold, the name of the merged group.

AurionGold represents one of the few remaining opportunities for international gold majors in Australia. It has reserves of six million ounces and produces nearly a million a year. A big update in its resource estimate is expected soon after an extensive drilling programme.

The only other gold miners of any size on the Australian stock market are Newcrest Mining (A$2.2 billion) and the struggling Sons of Gwalia (A$1.8 billion). Lihir (A$2.1 billion) is also viewed as a tempting target but its operations are based on the Papua New Guinea island of the same name.

Investors are looking forward to a long and intense battle, which explains why AurionGold shares have risen well above the notional value of the Placer offer and defied a fall in the Canadian company's own stock.

Placer has most to gain from a merger because it is in a joint venture with AurionGold in two big projects in Granny Smith and Porgera.

It has identified US$25 million ($52.52 million) worth of savings, adding to the US$10 million that was earmarked in the Delta-Goldfields merger and have yet to be realised.

But potential rival bidders are easily identified. Jilted Normandy suitor AngloGold and another South African miner, Goldfields, want to establish large Australian gold mining operations.

AngloGold bought Acacia Resources several years ago and was the jilted suitor for Normandy. Goldfields last year snapped up WMC's gold division and has cased several other opportunities.

Both companies could gain from AurionGold because they have interests near those of their potential target, as could Barrick Mining, which was forced to hand in its mantle of the world's biggest producer after Newmont snared Normandy.

The big challenge for AurionGold managing director Terry Burgess and his board will be to orchestrate the type of auction that Robert Champion de Crespigny achieved at Normandy, where he managed to extract nearly A$1 billion of extra value from an auction between Newmont and AngloGold.

He may get support from analysts. The value of anything should be the price people are prepared to pay.

A UBS Warburg report said this week that if investors applied North American valuations to AurionGold, then it could be worth anything from A$6 to A$11 a share.

The Placer bid is now worth A$4.51 a share. That should give Burgess something to work with.

* Giles Parkinson is deputy editor (new media) of the Australian Financial Review.