Along with Zinifex, Oxiana is on the list of every broker and investment bank as a stock that ‘will be taken over’: it’s a favourite of the tipsters and alike and yet Oxiana and its CEO, Owen Hegarty have continued doing what is best for the company.
That’s mining, drilling, exploring, and as we have seen over the past month that has resulted in two significant new discoveries at existing operations in Western Australia (Scuddles) and South Australia (Prominent Hill).
Yesterday Oxiana revealed a bid of its own: it was a secret up till yesterday morning but even then the best the investment media could come up with was a deal with Newmont over a 20 per cent stake the latter held in Agincourt Resources.
That was partly right: the full story was a friendly $415 million all paper bid for Agincourt, with a foot placed on that key holding of Newmont. As well the board has committed for a further 10 per cent stake and with a minimum acceptance condition of 90 per cent, the only way the OXR bid could be trumped would be with an all cash offer.
The offer of 0.65 shares in Oxiana for each Agincourt share has been recommended by the Agincourt board. It values Agincourt at around $1.94 at the OXR price of $2.89. OXR shares closed down at $2.85 yesterday. AGC shares traded a bit under that yesterday and closed at $1.80, up 36c.
Oxiana said yesterday its bid values Agincourt at $415 million and was a 34 per cent premium to the AGC closing price of $1.44 on January 24.
Agincourt owns the Martabe gold project in Indonesia, the Wiluna gold operation in Western Australia and 57 per cent of Nova Energy Ltd, a uranium explorer and project developer in WA.
Owen Hegarty said in a statement yesterday “Agincourt’s Martabe Gold Project in North Sumatra, Indonesia, will significantly enhance Oxiana’s gold portfolio, increasing the company’s gold resource base to about 16 million ounces (including silver equivalents). Martabe will add an advanced and significant project in Indonesia to Oxiana’s recent exploration JV with Kalimantan Gold.
“It is Oxiana’s intention to maintain the focused approach to timely development of the Martabe project, subject to the results of the ongoing Feasibility Study.
“Agincourt also has the controlling stake in Nova Energy Limited, which holds the advanced Lake Way / Centipedeuranium project in Western Australia. Nova represents another uranium opportunity for Oxiana which started with our investment in Toro Energy.”
More importantly the combined company will have reserves of 13.8 million ounces of gold and 144.6 million ounces of silver (plus 3.7 million tonnes of copper from OXR’s own mining operations and some zinc, almost a million tonnes).
In fact the acquisition, should it happen, will all but double OXR’s gold and silver business: with the added bonus of more output from the new discoveries at Scuddles and Prominent Hill in future years.
But the acquisition will have an immediate impact: it will allow OXR to replace an expected sharp downturn in gold production from its Sepon mine this year in Laos.
“The takeover represents significant value for Oxiana shareholders by increasing gold resources to around 16 million ounces (including silver as gold equivalent ounces) through the Martabe project in Indonesia,” Oxiana said.
“Also included is the Wiluna Gold Operation in Western Australia which currently produces around 110,000 oz per annum and has resources of one million ounces.”
Oxiana also said in its fourth quarter production report released on Monday that it had achieved its production targets for the year but that shortfall at Sepon mine in gold production this year will see output fall to around 100,000 ounces from the 173,500 produced in 2006.
The Agincourt board said in a statement yesterday that “After careful consideration, the board of directors of Agincourt has unanimously resolved to recommend the offer to shareholders and have advised they intend to accept the offer with respect to their own shareholdings, in both cases subject to the absence of a superior offer.
“The Agincourt board believes that the strength of Oxiana’s balance sheet and cash flows together with their experience in South East Asia and in project development will be beneficial to the development of the Martabe gold project in Indonesia.”
Agincourt also agreed to remove the voluntary escrow over Newmont Mining Corp’s 19.9 per cent stake in Agincourt, to allow Newmont and Oxiana to enter into an option agreement announced by Oxiana yesterday.