Papua New Guinea's Lihir Gold Backs $8.8 Billion Merger with Australia's Newcrest Mining

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Researched by Industrial Info Resources (Sugar Land, Texas)--In its bid to create Asia-Pacific's biggest gold-producing entity, Australian gold mining company Newcrest Mining Limited (ASX:NCM) (Melbourne, Australia) has made an $8.8 billion takeover offer to Lihir Gold Limited (ASX:LGL) (LGL) (Port Moresby, Papua New Guinea). If the merger comes through, the combined entity will have gold, copper and silver assets in Australia, West Africa, Indonesia and Papua New Guinea. The merged portfolio will consist of high-margin, long-life and tier-one gold-producing assets.

The new entity after the merger, which is touted to be Australia's biggest in the resources sector, also will become the fourth-largest gold-producing company in the world. The combined entity, which will become the 12th-biggest company on the Australian Stock Exchange, will have a market capitalization value of about $27.6 billion. The combined gold reserves of the merged entity are likely to be about 73.4 million ounces.

Sources have said that the two companies signed a "merger implementation agreement" on May 4, 2010. Under the agreement, Newcrest Mining will acquire all of the ordinary shares of LGL. Company shareholders will be awarded one Newcrest Mining share for every 8.43 shares of LGL. For every share, stakeholders also are expected to receive cash payments of $0.20, less any interim dividend that has been paid or declared by LGL for the half-year ending June 30, 2010. However, LGL officials said that the company is talking to other companies and has set June 8, 2010, as the deadline for receiving competitive bids. Industry analysts have indicated that gold producers such as Barrick Gold Corporation (NYSE:ABX) (Toronto, Canada) and Kinross Gold Corporation (NYSE:KGC) (Toronto, Canada), also may be in the fray. Newmont Mining Corporation (NYSE:NEM) (Greenwood Village, Colorado), the largest gold producer of the United States, also is reportedly keen to make a bid.

The LGL and Newcrest Mining merger is expected to provide minimum cost savings of $93.8 million. According to Dr. Ross Garnaut, the chairman of LGL, the merger holds several benefits for both companies, including substantial reduction in cost of capital, huge savings in large-scale procurement, and exponential increase in the scale of operations. The acquisition will expand Newcrest Mining's operations to other locations in the region. Commenting on the proposed merger, Newcrest Chief Executive Officer Ian Smith said, "It is creating something that is quite unique, not only in the gold industry, but in the mining industry." The combined entity will operate 10 mines in five countries. Newcrest is likely to begin due diligence of LGL's accounts and books on June 8, which will be followed by LGL shareholders' voting in July this year. The new merged entity will have a production capacity of 2.8 million ounces per year of gold, with plans to augment capacity to 3.75 million ounces per year in the future.

In 2009, LGL produced 1.12 million ounces of gold, with its Lihir Island, Bonikro and Mount Rawdon mines contributing 853,000 ounces, 150,000 ounces and 108,000 ounces, respectively. During the first quarter of the fiscal year ending March 31, 2010, LGL's combined gold production from its three mines was 230,000 ounces. As on June 30, 2009, Newcrest, which is Australia's largest gold producer, had copper and gold reserves of 4.67 million tons and 42.8 million ounces, respectively. Newcrest operates six gold mines, which include Kencana, Telfer underground, Telfer open pit, Cracow and two sites in Cadia Valley. The company is performing exploration activities in Canada, Indonesia, the U.S., Fiji, Australia and Peru. For the quarter ending March 31, 2010, Newcrest produced 41,651 ounces of gold and 20,598 tons of copper.

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