Newcrest Proposed Takeover of Lihir

Newcrest Mining Proposed Takeover of Lihir God

With the economy starting to recover after the global economic meltdown, many companies are looking into new investments which will yield positive NPV results. And if there was one industry that gained prominence, it was the commodities industry, in particular gold, which was seen to be a good hedge against all the uncertainty.

During the downturn, many mining companies focused on cutting costs and keeping a tight rein on balance sheets. However, with the positive outlook ahead, there is now a takeover frenzy in the industry in what could be the most active period of consolidation for years.

One potential takeover battle is the recent bid by Newcrest Mining on Monday 29th of March for control of Lihir Gold. Details of the proposal are as follows :

- a scrip and cash acquisition of Lihir

- ratio of 1 Newcrest share for 9 shares in Lihir

- plus A$0.225 cash per Lihir share

- 35% premium to the closing Lihir share price on 12 February 2010

- 31% premium based on Newcrest and Lihir’s 1 month volume weight average price (VWAP) to 29 March 2010

- 32% premium based on Newcrest and Lihir’s 3 month volume weight average price (VWAP) to 29 March 2010

Information from the Australian Securities Exchange (ASX) indicate that Newcrest Mining is the third biggest company in the metals and mining industry with a market capitalization of A$15.9bn, while Lihir Gold is fifth with a market capitalization of A$8.6bm. The combined company would thus be backed by a pro-forma market capitalization of A$24.5 billion with minimal net debt of A$200 million, making it Asia-Pacific’s largest gold producer.

Benefits of the proposed combination of Newcrest and Lihir are as follows:

i) Creation of a portfolio with one of the largest global gold mine

The combined organization would produce 2.8 million ounces of gold per annum, making it the fifth largest gold producer in the world

ii) Geographical and asset diversification

A combination...