Lihir Gold agrees to takeover bid by Australian miner

In a deal that would create one of the world’s largest gold producers, the board of Lihir Gold of Papua New Guinea recommended Tuesday that its shareholders agree to a sweetened $8.8 billion takeover offer from Newcrest Mining of Australia.

The acquisition, if successful, would be the latest in a succession of deals in the rapidly consolidating global mining sector.

Lihir operates one of the world’s largest gold mines, on Lihir Island in Papua New Guinea, and has sizable assets in Australia and West Africa, making it an attractive takeover target at a time of soaring gold prices.

Gold prices hit record high levels in December as the turmoil in the global financial markets caused investors to flee into assets that are generally considered safe. On Tuesday, gold was trading at more than $1,181 per ounce — well above levels of about $950 in mid-2009.

Newcrest first announced an offer for Lihir on April 1, and it secured the backing of Lihir's board Tuesday after it raised its bid by 6.4 percent. Based on the Monday closing price of Newcrest shares, the new offer values Lihir at 9.5 billion Australian dollars, or $8.8 billion, the companies said in a joint statement.

The combined entity would produce about 2.8 million ounces of gold per year, ranking it as one of the world’s five largest producers.

Under the agreement, Lihir will be able to continue existing discussions with other, unidentified potential bidders — currently at "various stages," according to the company — until June 8.

But Lihir's chairman, Ross Garnaut, said the company "had recognized from the outset" the "strong strategic logic in combining the two organizations," adding that the company was "pleased to have secured an improved financial proposal that we can recommend to our shareholders." A shareholder vote is expected in late July.

The deal is subject to further due diligence by Newcrest, which is expected to be completed by June 8. It is also subject to an independent expert's report that will examine, among other things, the implications of a so-called supertax on mining profits announced by the Australian government Sunday, said Ian Smith, Newcrest's chief executive.

The tax proposal has battered Australian miners' shares this week and raised concerns that a number of deals now in the pipeline could be abandoned.

Macarthur Coal, the subject of a 4.1 billion-dollar bid by Peabody Energy of the United States, said Tuesday that Peabody was "continuing to work through the impact" of the tax plan. Macarthur’s shares closed at 13.62 dollars Tuesday, well below the 16 dollars offered by Peabody last month, as investors fretted that the deal might fall through.

However, Mr. Smith of Newcrest said he believed the tax proposals were a "worst-case scenario" that would probably be watered down before being passed and have only a limited effect.

"Newcrest can now afford to pay a little bit more to acquire Lihir because Lihir represents foreign earnings and is therefore not vulnerable to the new Australian resource tax," Grant Craighead, an analyst at Stock Resource, told Reuters.

With a market capitalization of more than 24.5 billion dollars, low debt levels and strong operating cash flows, the combined entity would have greater scale and financial capability to invest in future growth and development, the two companies said.

(Published by The New York Times - May 4, 2010)

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