Placer adds cash sweetener to Aurion bid

Vancouver – With a falling gold price shaving 40% off of Placer Dome’s (PDG-T) share price over the past six weeks, the major has caved in and added A$0.35 per share in cash to its May 27, all-stock takeover bid for Australian miner, AurionGold.

The additional US$84 million comes on top of the original bid of 17.5 Placer shares for every 100 AurionGold shares, putting the value of AurionGold, at around A$3 per share.

Placer’s original offer valued AurionGold at A$4.51 a share, but Placer shares have since fallen in line with a weaker gold price, diluting the value of the bid. By July 29, Placer shares had sagged some 40% to US$8.21each, generating an offer price below the A$3.48 level at which the shares were trading just before the hostile takeover offer.

AurionGold had advised shareholders to reject Placer’s earlier bid, citing that the all stock deal was too low and volatile given changing market conditions. The rejection forced the major to extend the closing date of the offer, twice. The latest deadline is set for Aug. 7.

“Placer Dome has listened to the issues raised by the market and has provided additional certainty to the offer by adding a cash component and making the offer consideration final and the offer unconditional,” says Placer Chief Executive Officer, Jay Taylor.

Despite lifting the condition that 50.1% of AurionGold shareholders accept the offer, the major remains optimistic about receiving more.

“We still hope to move to 100% ownership of AurionGold,” adds Taylor.

AurionGold’s major shareholder with a 9.8% stake, South African-based Harmony Gold (HGMCY-Q) has agreed to accept the revised offer.

“In our view the terms of Placer Dome’s offer are attractive and represent fair value for AurionGold,”says Harmony’s Chief Executive Officer, Bernard Swanepoel.

The Aussie company is currently advising shareholders to take no action, while the directors evaluate the revised offer.

According to Placer, a review of AurionGold’s revised debt and hedging positions, along with an increase in estimated reserves helped the company increase its offer.

“We believe the transaction remains accretive for Placer Dome on a cash flow per share and net asset value per share basis, under the revised offer terms,” says Taylor.

The takeover would give Placer Dome full ownership of the rich Granny Smith gold mine and lift its half ownership in Papua New Guinea’s Porgera mine to 75%. AurionGold also runs a gold mine in Tasmania state and has a 21% stake in a Zimbabwean platinum mine.

AurionGold was assembled in December through a US$425 million merger of Delta Gold and Goldfields, the two medium size mining houses. 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.

Placer latest financial results may have also played a role in the increased bid, as the major saw production drop due to depleting reserves at some of its mines.

The major posted a profit of US$42 million, or US$0.13 per share in the second quarter ended June 30. This marks a considerable jump from the US$33 million, or US$0.10 per share profit tallied in the year ago period.

Revenues came in at US$276 million, down from US$302 million a year earlier as lower copper prices and a decrease in production was offset by the higher gold prices.

Placer produced 670,000 oz of gold in the quarter at a cash cost of US$181 an oz, down from 747,000 oz produced at a cash cost of US$173 per oz in the second quarter of 2001. The shortfall was caused by the closure of its Kidston mine in Australia, in 2001 and the winding down of production at its Golden Sunlight mine in Montana and Misima mine in Papua New Guinea.

The company realized an average gold price of US$334 per oz, up from US$305 recognized last year.

The company’s star performer continues to be the Granny Smith mine, which added 155,000 oz of gold in the first half of the year, up 58% from the 98,100 oz recorded last year. Also boosting its bottom line was the La Coipa mine in Chile where production tallied 43,500 oz, up 52% from the 28,600 oz recorded last year and its 50% held South Deep mine in South Africa, where production rose 11% to 89,000 ozs.

On the copper front, Placer produced 108 million lbs. of copper during the quarter at a cash cost of US$0.46 a lb, up from 99 million lb at a cash cost of US$0.45 a lb during the same period last year. The major realized a copper price of US$0.72 a lb, down from the US$0.76 per lb received last year.

In the first half of the year, Placer produced 1.3 million oz of gold and remains on target to hit 2.5 million oz. this year. With AurionGold, the company would become the fifth largest gold miner in the world with annual production hitting 3.8 million oz.