AurionGold eyes sweetener (July 01, 2002)

As expected, the board of directors of Aussie takeover target AurionGold has advised shareholders not to accept Placer Dome‘s (PDG-T) all-share bid, as it wrangles for a cash sweetener.

In a letter accompanying the company’s target statement, AurionGold Chairman Richard Warburton advised shareholders: “The directors of AurionGold recommend that, at this time, you not accept Placer Dome’s offer and that you delay taking any action in relation to the offer until further advice from your directors.”

AurionGold says the value of Placer’s offer rang in around A$2 billion, or A$4.51 per AurionGold share, at the time of its May 27 announcement, but that it has since dropped significantly. Originally, Placer’s offer of 17.5 shares for every 100 AurionGold shares represented a 30% premium over AurionGold’s then share price of A$2.51. Since then, says Warburton, the premium has fallen to about 10%.

Placer’s president and chief executive officer, Jay Taylor, disputes Warburton’s 10% figure and says that if it wasn’t for his company’s bid, AurionGold shares would have probably traded in line with other gold stocks during the bid period.

AurionGold’s target statement focuses on what it calls an uncertain bid by Placer. At a media briefing, AurionGold CEO Terry Burgess said: “There is no uncertainty about cash.” The company has been pushing Placer for a cash sweetener for weeks via the media.

Two days after Placer’s bid, AurionGold shares hit a 52-week intra-day high of A$5. In the 30 days prior to the offer, the share price averaged A$3.06. On June 25, AurionGold shares closed A6 higher at A$4.14 on the Australian Stock Exchange.

For their part, Placer Dome shares have been generally declining since the offer’s closing; On June 25, they were trading at $19.10, down 30, on the Toronto Stock Exchange. On May 24, Placer shares hit a 52-week intra-day high of $22.57. In afternoon trading on June 26, the stock was trading at $18.73, off 37.

Based on each companies’ closing price on June 25, Placer’s offer valued Aurion at A$3.85 per share or A$1.78-billion.

AurionGold’s statement also warned shareholders of Placer’s declining production profile over the past three years, its exposure to copper, and political risk in South Africa. The company also reminded shareholders that its dividend has historically outpaced that paid by Placer, and that its payments come with tax pre-paid.

Pretax savings

The company says it has identified another A$8 million in pretax annual cost savings, on top of the A$15 million already generated by birth from the merger of Delta Gold and Goldfields.

Taylor says all of the points were well-known to the market and factored into his company’s bid. He points out that AurionGold has failed to provide its shareholders with any guidance as to the value of their company, as its target statement does not contain an Independent Expert’s Report.

While a rival bidder has yet to surface, Warburton said in his letter to shareholders that “your directors will continue to consider alternative options, including the potential for rival bids.”

So far, the company has failed to spark a bidding war. Many market-watchers cite AurionGold’s hefty hedge book for the lack of interest.

At the end of May, AurionGold’s hedge book covered more than 5.9 million oz. gold, or 78% of its reserves.

Also, Placer is seen as the best fit, as it is already partnered with AurionGold at the Porgera gold mine in Papua New Guinea and the Granny Smith gold mine in the Kalgoorlie district of Western Australia.

Based on each companies’ closing price on June 25, Placer’s offer valued AurionGold at A$3.85 per share, or A$1.8-billion.

Placer maintains that its offer should be accepted by AurionGold shareholders.

Placer’s bid is due to close July 12. The offer can be extended subject to certain conditions. The Vancouver-based company has already secured the endorsement of South African-based Harmony Gold (HGMCY-Q), which, with a 9.8% interest, is the Australian company’s largest shareholder.