Highlands to sell Porgera to Placer Dome

Australian-based Highlands Gold has struck a US$250-million deal with Placer Dome (PDG-T) to sell its 25% interest in the massive Porgera gold mine in Papua New Guinea.

Highlands, formed under Papua New Guinean laws, used the agreement to sidestep an earlier attempt by Placer Dome to acquire the company through a takeover. The deal will boost the Vancouver major’s holding in the mine to 43.8% from 18.8%.

Highlands’ offer comes in response to a recent proposal from Placer Dome to take over the company in return for US$340 million, or A75 cents per share.

Ian Goddard, Highlands’ managing director, described the offer as “totally inadequate’ in light of a report that estimated his company was 40% more valuable than Placer Dome’s offer suggested. Barings Brothers Burrows valued Highlands at A$513-618 million, or between A96 cents and A$1.14 per share.

Placer Dome then countered by offering to abandon its takeover attempt in exchange for the company’s 25% share of the Porgera mine.

“[Highlands] made a counter proposal to us,’ says Hugh Leggatt, a spokesman for Placer Dome. “We’re paying a higher price than we originally offered.’ The division of Highlands responsible for Porgera will become a subsidiary of Placer Dome, while the remainder of the company will operate independently as Highlands Pacific. (The company also controls the Frieda-Nena gold-copper project and the Ramu nickel-cobalt project in Papua New Guinea, as well as several Indonesian properties.) Placer Dome currently owns more than 46% of Highlands Gold.

“Strictly speaking it isn’t a sale, but it has that effect,’ says Philip West, a spokesman for Highlands, of the latest deal.

All shares of Highlands Gold that are not owned by Placer will be cancelled in exchange for A65 cents each, plus one share of Highlands Pacific for one share of Highlands Gold. “The benefit to our shareholders is that they get .

. . cash plus a share,’ West explains. The value of the deal now stands at A90 cents per share.

Leggat says the deal is conditional on Highlands’ raising A$160 million in order to fund Highlands Pacific. “That’s a condition they placed on themselves,’ he says.

Porgera, a combined open-pit and underground operation, has produced more than 6 million oz. gold since it opened six years ago. Proven and probable reserves stand at 78.7 million tonnes grading 4.5 grams gold per tonne, equivalent to 11.5 million oz. Measured and indicated resources, based on a cutoff of 1.5 grams, amount to an additional 16.4 million tonnes grading 2.2 grams.

Porgera produced 848,872 oz. gold in 1995 at a cash cost of US$197 per oz.

and a total cost of US$267 per oz.

Placer Dome is also bidding for the 25% interest it does not already own in Placer Pacific, a subsidiary that holds 25% of Porgera.