Newmont ups ante as AngloGold stands pat

Determined to win a bidding war with AngloGold (AU-N), Newmont Mining (NEM-N) has raised its offer for Normandy Mining (NDY-T) as an insurance measure.

In mid-November, Newmont triggered the battle for Normandy by countering the South African miner’s existing bid and concurrently announcing a proposed, indirectly related merger with Franco-Nevada Mining (FN-T). The contenders have since revised their bids twice while removing unfavourable restrictions in an effort to win over Normandy shareholders.

Newmont now offers A50 per Normandy share plus 3.85 treasury shares for every 100 Normandy shares. The cash incentive is A10 greater than before and twice as much as AngloGold’s cash component.

The revision places a value of A$1.93 on each Normandy share on Jan. 2, or A5 more than the upper range provided by Normandy’s independent evaluator. On that day, AngloGold’s offer valued Normandy at A$1.81 per share, which includes 2.15 AngloGold shares per 100 Normandy shares. The gap has since narrowed, owing to subsequent trading activity.

Newmont says the revised bid does not alter the company’s plans for the triad. Chairman Wayne Murdy once again highlighted the financial benefits of the takeovers and the inclusion of Franco’s royalty and merchant banking arms as buffers to low gold prices.

In response, AngloGold says it can find no additional value in Normandy to justify another increase in its own bid; hence, investors must decide which company better fits their portfolio. In this respect, Chairman Bobby Godsell notes that AngloGold has generated US$918 million in profits and paid out US$845 million in dividends over the past three years, compared with US$388 million in losses and US$59 million in dividend payments for Newmont.

Normandy shareholders who choose AngloGold qualify for the company’s final 2001 dividend. They are also entitled to buy an additional $7,500 worth of AngloGold treasury shares at a 7.5% discount to market prices.

The world’s biggest gold miner is currently AngloGold, though it would cede that title to Newmont should it lose the war.

Normandy, currently Australia’s largest producer, cranked out 2.3 million oz. in fiscal 2001 from a reserve of 26.4 million oz. The Kalgoorlie Super Pit and the suspended Boddington operations account for just under 42% of the reserve base.

Should it win the day, AngloGold plans to relinquish managerial control of Kalgoorlie to half-owner Barrick Gold (abx-t) in return for an unspecified price. Similarly, Barrick may also participate in the resumption and expansion of Boddington, where AngloGold’s interest stands to jump to just shy of 78%.

Details of the Barrick angle are not wanting, but AngloGold may release them before its deal expires on Jan. 11. The company does say the Normandy expense will be more than offset by the compensation received from Barrick and the savings that would be made possible as a result of their co-operation elsewhere.

Holding firm

Unlike AngloGold, Newmont does not plan to relinquish control of Kalgoorlie nor dilute its share in Boddington or other major assets. Management is also holding firm on unwinding Normandy’s hedge book and remaining unhedged, whereas AngloGold plans to adjust the book to conform to its policy of selling forward no more than half of five years’ worth of production.

Newmont expects to conclude the Normandy and Franco transactions by mid-February, assuming shareholders and U.S. regulators agree to them. The latter deal remains conditional on a 50.1% acceptance level from Normandy shareholders, though Newmont has tied up Franco’s 19.8% equity stake and those shares held by Normandy’s directors.

Normandy and Franco management remain firmly in Newmont’s camp. The former group cites the higher cash payment and the fact that Newmont’s current implied value is greater than AngloGold’s for all of the past year.

On behalf of Franco, Chairman Seymour Schulich expressed concern over AngloGold’s proposed partnership with Barrick. “Those risks and the related uncertainty of the value of AngloGold would cause us to be very reluctant holders of its shares. At the same time, we don’t see how the market for AngloGold shares, which is very thin, can support the disposition of those shares by arbitrageurs and others who share our views.”

Franco has scheduled Jan. 30 for a shareholder vote on the Newmont offer.

At presstime, AngloGold was trading at R433 (nearly equivalent to the ADRs, when exchange rates and ratios are considered), Newmont at US$19.44 and Franco at $23.90. At these prices, the Newmont offer is A8 richer than the AngloGold bid and, in the case of Franco, provides a 4% premium on Franco shares at the agreed exchange ratio of 0.8-to-1.