AurionGold eyes sweetener (May 30, 2002)

Vancouver The stock market reaction to Placer Dome’s (PDG-T) US$1.1 billion hostile takeover bid for AurionGold has prompted the Australian miner to look for an increased offer.

On Sunday, the world’s seventh largest gold producer bid 17.5 of its shares for every 100 shares of AurionGold, valuing the company at A$4.51 a share. Since the announcement of the offer, the AurionGold share price has traded as high as 10% above the implied value of the Placer Dome offer. Shares in the Australian company recently traded at A$4.64 each, up considerably from the A$2.51 per share before the offer was made.

AurionGold’s board of directors is assessing Placer’s offer and considering alternative options. The company faces a June 11 deadline for issuing a formal response and recommendation to shareholders.

Coming off the failed acquisition of Getchell Gold, Placer may be hesitant to sweeten its bid. The company bought Getchell Gold for US$1.2 billion in stock in 1999, and subsequently was forced to write down the investment after realizing that developing Getchell’s Nevada property would be more costly than it expected and uneconomic at current gold prices. Placer hasn’t made a purchase for more than US$257 million since.

The takeover, if successful, would give Placer full ownership of the rich Granny Smith gold mine in the Western Australia and increase its stake in the Porgera mine in Papua New Guinea to 75% from its current 50% interest. As a result, Placer would move into the # 5 slot of global gold producers with annual production of 3.8 million oz. Synergies from its existing operation would produce savings of US$25 million per year and pushed the cash costs to produce an oz of gold down to an enviable US$175. Placer also sees the opportunity to receive a tax deduction on the purchase price under an Australian investment incentive package currently in draft legislation.

Placer has already received the endorsement of South African-based Harmony Gold (HGMCY-Q), which is the Australian company’s largest shareholder with a 9.8% interest.

AurionGold was formed in late last year through the US$425 million merger of two medium sized Australian miners, Goldfields and Delta Gold. The merger catapulted the new company to the million-ounce-per-year level. Under the deal, Delta shareholders received 187 Goldfields shares for every 200 Delta shares.

Delta Gold brought to the table 100% of the Kanowna Belle, Golden Feather and Wirralie gold mines, as well as a 40% stake in the Granny Smith mine. Goldfields added the Paddington and Kundana mines in Western Australia, the Henty mine in Tasmania, and a 25% interest in the Porgera mine in Papua New Guinea.