Fatprophets strongly reject offer

1OOn Monday morning Canadian based Placer Dome
(PDG – NYSE code) launched a takeover bid for
AurionGold (AOR), with the offer valuing the company at
$4.51 per share. The bid is not surprising in our opinion,
given that Australian gold stocks continue to be valued on
lower price earning multiples than their North American
counterparts. Additionally, the low value of the Australian
dollar has effectively made domestic gold producers
tempting targets for offshore predators. Already a number of
companies, including Australia’s largest gold producer
Normandy, have fallen into overseas hands, and we view
this trend as being likely to continue.
Placer Dome Inc is one of the world's largest gold mining
companies with major mining operations in Canada, the
United States, Australia, Papua New Guinea, South Africa
and Chile. The company’s strategy is to grow organically
and through acquisition, hence the takeover bid for Aurion.
We believe that if successful, the takeover will benefit all
shareholders in creating a larger and more efficient gold
mining company with a diversified asset base. At this stage
however, we strongly recommend that Placer Dome’s
takeover offer not be accepted. In our opinion, there is a
high probability that another bid could emerge from a third
party. In the event of another offer emerging, it is probable
that Placer Dome would then increase their offer. We
believe that the best strategy at this point is to continue
holding Aurion for the time being.
The takeover has propelled Aurion to a record high of $4.62,
and with an uptrend now firmly established, further gains are
possible in our view. Not surprisingly, as depicted in the
smaller chart, Placer Dome has endured a lengthy bear
market along with the rest of the gold sector. Between 1996
and 2000, PDG fell 73 percent
issue 83 May 28th 2002
...continued over page
DAILY CHART
2001 - 2002
Rising trendline
Fat Prophets
stay with AOR
Placer Dome
1987 - 2002
"The takeover has
propelled Aurion to a
record high of $4.62, and
with an uptrend now firmly
established, further gains
are possible in our view."
Hold AOR
medium term “specialty dish”
AurionGold
medium risk
to hit an eight year low of C$11.10 (Canadian dollars) in
October 2000. Along with the global gold sector, Placer has
since started to recover after establishing a solid support
base between C$11 and C$12. However, the current share
price of C$22 is still well below the mid 1990s high of C$42.
Placer Dome is seeking to enhance its mine and exploration
portfolio in the Kalgoorlie and Laverton regions, and derive
benefits from cost saving synergies between the two
companies. In our opinion, the existing mining operations
and assets of AurionGold make a logical fit with Placer
Dome's asset base. If the takeover proceeds, Aurion
shareholders will own approximately 19 per cent of the
enlarged company.
Under the terms of the offer, Placer Dome is offering 17.5 of
its own shares for every 100 Aurion Gold Shares. The offer
effectively values Aurion at $4.51 a share, or just under $2
billion (based on a 24 May 2002 closing price for Placer
Dome Shares of US$14.27, and an exchange rate of
US$0.5539). Placer Dome is making an application to the
Australian Stock Exchange to establish a facility for the issue
of Placer Dome CDI’s. The takeover offer is conditional on
Placer Dome achieving acceptances of 50.1 percent.
Further information on AurionGold is available in issues 66
and 50 from the Fat Prophets Members Archive
(www.fatprophets.com.au) Other stocks featured in this issue
are Caltex Australia (CTX), Ridley Corporation (RIC) Auspine
(ANE) and Craine Group (CRG).