Less than a day later the kneejerk reaction by some investors in selling their mining shares was exposed as short-sighted by the $9.5 billion reworked agreed merger between Newcrest and Lihir Gold.
The deal’s size is greater than the BHP Billiton takeover of Western Mining Resources, and will see the world’s 4th largest gold group formed, in an industry where super profits can be made from time to time because of the volatility of global gold prices and the increased financial instability.
And yet the tax changes announcement by the federal government (and a long way from being LAW), didn’t derail the deal, despite some media commentators attempting to suggest that it would.
While people were panicking Monday and selling, other investors were sitting or buying.
The market was again weaker yesterday with BHP and Rio falling.
Newcrest shares dipped 3.4%, or $1.11 to $30.95 because of the size of the bid and the fear about possible debt, although Newcrest says it will fund the cash side internally.
Lihir shares rose 4.6%, or 17c, to $3.84.
AMP Capital Investors was one sitting because it believes in the China story.
It’s not selling its natural resource shares even after Prime Minister Kevin Rudd’s government unveiled plans to impose the world’s heaviest tax regime on mining companies, according to a strategist for the manager quoted by Bloomberg.
The firm believes the strength of demand for China is simply too big and will continue for years.
So news that Newcrest and Lihir plan to merge, despite the possible tax changes from Canberra, would have come as no surprise to managers like AMP Capital and others.
"LGL shareholders will receive one Newcrest share for every 8.43 LGL shares they own, plus A$0.225 cash per share, less any interim dividend declared or paid by LGL for the half year ending 30 June 2010," the companies said in statements issued before the opening of trading yesterday.
"Based on Newcrest’s closing price of A$32.06 on 3 May, the implied offer price from Newcrest is now A$4.03 per LGL share, valuing LGL at approximately A$9.5 billion.
"This represents a 6.4% improvement on Newcrest’s previous proposal to acquire LGL as announced on 1 April 2010."
Directors of LGL said they would all recommend that shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to an independent expert’s opinion that the Scheme is in the best interests of LGL shareholders.
"Each LGL director will vote the voting rights attached to all LGL shares over which he or she has control in favour of the shareholder vote to implement the Scheme (in the absence of a superior proposal and subject to the independent expert’s opinion that the Scheme is in the best interests of LGL Shareholders)," the LGL board said in yesterday’s statement.
The companies said the implied offer price of A$4.03 for each LGL share "represents an attractive premium for LGL shareholders on a range of measures".
These were:
- A 40.8% premium to LGL’s closing share price on 12 February 2010, the last trading day prior to Newcrest’s approach to LGL in February;
A 29.5% premium to LGL’s closing share price on 29? March 2010, the last trading day prior to Newcrest’s improved proposal in March; and
A 33.4% premium to LGL’s 1 month VWAP to 29 March? 2010.
Newcrest Chairman, Don Mercer, said the combination of Newcrest and LGL has compelling strategic logic and merit, which was recognised overwhelmingly by shareholders of both companies.
“The combined organisation will be Asia-Pacific’s leading gold producer, with a standout portfolio of long-life, high margin, tier one gold assets,” he said.
Newcrest Managing Director and CEO, Ian Smith, said the combined portfolio of assets was unmatched in the global industry, providing an outstanding platform to deliver superior returns to shareholders and offering significant opportunities for employees and other stakeholders.
“The portfolio of high quality operating mines and exciting growth opportunities will deliver long term, sustainable production growth within the lowest cost quartile of the global industry for at least the next 30 years,” said Mr Smith.
LGL Chairman, Ross Garnaut, said, “The LGL Board had recognised from the outset the highly complementary nature of Newcrest and LGL, and the strong strategic logic in combining the two organisations.
“We are therefore pleased to have secured an improved financial proposal that we can recommend to our shareholders,” he said. “Our shareholders will receive a highly attractive premium and, by receiving Newcrest shares, will participate in the benefits created by the combination of the two companies."
Newcrest said a "mix and match structure has been established so that LGL shareholders will have the opportunity to choose from the following alternative forms of consideration":
- Mixed Consideration: As described above, being a fixed ratio of 1 Newcrest share for every 8.43 LGL shares, plus A$0.225 cash per share (less any interim dividend declared by LGL for the half year ending 30 June 2010);
- Maximum Shares: for LGL shareholders wishing to increase the scrip component of their consideration; or
- Maximum Cash: for LGL shareholders wishing to increase
