For a second time, but now with a whiff of desperation,
On May 27, Placer announced it was offering 17.5 of its shares for every 100 AurionGold shares. The offer is conditional on a 51% acceptance rate.
Placer’s shares closed at US$14.27 (C$21.92) on May 24, and so the offer originally valued the Aussie gold miner’s shares at A$4.51 apiece, representing a 30% premium, for a total offer of about US$1.1 billion (A$2 billion).
However, when markets closed on July 16, Placer shares had sagged 28% to US$10.27 (C$16.10), generating an offer price of about A$3.23 per AurionGold share, or below the A$3.48 level at which the shares were trading just before Placer’s offer.
The only large shareholder to have publicly supported Placer’s bid is South Africa’s
On July 3, Placer offered its first 2-week extension, to July 24. But with no improvements made to the bid, AurionGold’s board of directors officially rejected the offer on July 5.
Following the second extension, announced July 11, AurionGold repeated its rejection recommendation and added that “Placer has again failed to restore the value which its offer has lost since the date of announcement or to address the considerable uncertainty attached to its offer.”
Placer says it extended its offer once again “to provide AurionGold shareholders with time to consider” the offer once there is a settling-down of any “temporary distortions” caused by the major’s surprising removal from the S&P 500 index along with six other foreign companies — a move announced by Standard & Poor’s after the market closed on July 9.
In fact, Placer’s share price had already fallen 26% by July 3, and the stock had recovered all of its lost ground caused by the S&P announcement by early trading on July 11.
The poor performance of its shares in recent months suggests that the market is punishing Placer for trying to take over, at a premium, a highly hedged company (6 million oz. hedged, representing almost six years of production) when gold appears to be in a new bull market.
What Placer has not acknowledged publicly is that its takeover premium has evaporated and AurionGold shareholders are now hanging on for a sweetener, which some industry-watchers say needs to be in the neighbourhood of US$200 million.
But with no rival bidders, Placer management obviously feels it can take its time. The major has more than enough financial strength to close the deal by offering more cash: at last report, it held about US$450 million in cash plus more than US$700 million in undrawn bank credit lines.
Meanwhile, AurionGold has released production results for its fourth quarter ended June 30, a period that saw the miner producing gold for the first time at an annualized rate exceeding 1 million oz.
AurionGold’s attributable gold production during the quarter totalled 275,385 oz., mined at a cash cost of A$302 (US$158) per oz. and a total cost of A$426 (US$223) per oz.
AurionGold’s share was derived from six operations:
– Henty (wholly owned minus a 1-to-10% royalty) — 20,639 attributable ounces at a total cost of A$453 per oz.;
– Kanowna Belle (wholly owned) — 62,360 oz. at a cost of A$473 per oz.;
– Kundana (wholly owned) — 19,552 oz. at a cost of A$484 per oz.;
– Paddington (wholly owned) — 75,410 oz. at a cost of A$493 per oz.;
– Granny Smith (40% interest, with Placer holding 60%) — 56,068 attributable ounces at a cost of A$281 per oz.; and
– Porgera (25% interest, with Placer holding 50%, Orogen Minerals, 20%, and the Enga provincial government and landowners, 5%) — 41,356 attributable ounces at a cost of A$389 per oz.
Henty, Kanowna Belle, Kundana, Paddington and Granny Smith are all in Australia, whereas Porgera is in Papua New Guinea.
Of note, Granny Smith produced its 4-millionth ounce during the period, while Kanowna Belle produced its 2-millionth.
For the 12 months ended June 30, AurionGold produced 790,775 oz. gold at cash and total costs of A$316 (US$165) and A$433 (US$227) per oz., respectively. The discrepency between the quarterly and annual results is due to the inclusion of Granny Smith’s and Kanowna Belle’s output only since Feb. 1.
Full-year financial results will be released in August, but AurionGold does expect to post an after-tax profit of A$63 million.
Criticized
AurionGold has been criticized for its hedged production, though the company notes that its realized gold price of A$593 (US$311) per oz. exceeded the spot price for the seventh consecutive year. For the fourth quarter, the company received A$600 (US$314) per oz. compared with a spot price of A$567 (US$297) per oz.
AurioGold’s hedge position extends to 2011-2012 and amounts to 5.95 million oz., of which 60% are by means of purchased put options. The aggregate of firm and committed ounces is 5.83 million oz., or 76% of reserves and 23% of resources.
About 93% of committed onces are denominated in Australian dollars.
Based on a gold price of US$318.50 per oz. and an exchange rate of US$0.5664, the value of AurionGold’s gold hedge book on June 30, 2002, was negative A$392.9 million, while the value of its foreign-exchange hedge book was negative A$44.9 million.
A provision for Delta’s hedge book, made at the time of the merger, stood at A$223 million on June 30. The company says this sum will be released to profit as the underlying hedge positions are delivered over the coming years.
(Further details on the company’s hedge book are available online at www.auriongold.com.)
Regarding the operational efficiencies achieved since the merger of Goldfields and Delta, AurionGold says it has identified A$8 million in potential annual cost savings at its Kalgoorlie mines. This figure is on top of the A$15 million in pretax savings already achieved since the merger.
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