AurionGold Ltd. Chief Executive Terry Burgess put the largest Australian-based gold producer up for sale, saying an unsolicited $1.19 billion offer from Canada's Placer Dome Inc. may be too low.
AurionGold told shareholders in a letter filed with the Australian Stock Exchange not to act until directors have assessed Placer Dome's offer and ``alternative options.'' The company will open its books for rival suitors, Burgess said. He declined to name any companies that may have expressed interest.
Shares of AurionGold closed 8.7 percent higher than Placer Dome's bid price as investors bet the offer may be topped by rivals such as Toronto-based Barrick Gold Corp. or South Africa's AngloGold Ltd. That may force Placer to sweeten its offer by as much as 15 percent, including cash, shareholders have said.
``It's get big or get eaten,'' said Gavin Graham, director of investments for Guardian Group of Funds in Toronto, which manages C$8 billion of assets. ``Placer can pay the extra 10 or 15 percent much more easily than someone else because they already have a half share in major Aurion projects -- they know what they've got.''
Placer Dome has said buying AurionGold will save at least $25 million by combining interests. The Vancouver-based company stands to boost its stakes in the Granny Smith gold mine in Western Australia to 100 percent from 60 percent and in the Porgera mine in Papua New Guinea to 75 percent from 50 percent.
`Quality Mid-Cap'
AurionGold, formed in January from the merger of two Sydney- based rivals, has gold resources of as much as 16.2 million ounces, worth about $5.2 billion at current prices.
``There's not a lot of quality mid-cap gold stocks around at the moment, and AurionGold is one,'' said Mark Pervan, a resources analyst at Daiwa Securities SMBC in Melbourne.
Placer Dome on Sunday offered 17.5 shares for every 100 AurionGold shares. The purchase would add about 1 million ounces a year of gold production, making Placer Dome the world's No. 5 gold miner.
``One thing for certain is that we've got some good quality assets, and I don't think you must underestimate the strategic importance of them,'' Burgess said on a conference call. The market suggests ``this offer will need to be increased.''
Avoid Bidding War
While Placer Dome CEO Jay Taylor needs to add gold reserves to keep pace with Barrick and Newmont Mining Corp., some investors said he shouldn't raise his offer for AurionGold or get into a bidding war.
``Let somebody else overpay,'' said Jean-Marie Eveillard, who manages $3 billion of assets at Societe Generale Asset Management Corp. in New York, including shares of Placer Dome.
Gold stocks have soared and the pace of acquisitions in the industry has escalated as bullion prices rose to the highest in 4 1/2 years on Tuesday.
Gold miners have spent more than $10 billion on mergers and acquisitions in the past year. Newmont Mining Corp. of the U.S. became the world's No. 1 producer in February with the purchase of Australia's Normandy Mining Ltd. for $3.5 billion.
Other gold assets available to Placer would probably be in countries with a higher degree of political risk than Australia, where AurionGold draws four-fifths of its output, Burgess said.
Cash Costs
AngloGold spokesman Steve Lenahan and Barrick spokesman Vince Borg declined to comment. Another South African miner, Gold Fields Ltd., said in a February statement from Chairman Chris Thompson that AurionGold's assets ``are too enthusiastically priced for us.''
AurionGold said its average cash cost this year will be about A$330 an ounce. In the first quarter, Newmont's was $196 an ounce and Barrick's was $175. AngloGold puts its cash costs at $170 an ounce, while Harmony Gold Mining Co. is at $176.
AurionGold's shares fell 13 Australian cents, or 2.7 percent, to A$4.64. Placer Dome's stock bid is valued at A$4.27 a share. Placer Dome shares fell 16 Canadian cents to C$20.99 (US$13.68) in Toronto.
Placer Dome's last major acquisition failed. The company bought Getchell Gold Corp. for $1.2 billion in stock in 1999, then realized that developing the Nevada property would be uneconomic at current gold prices.
Source: Bloomberg
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