Canadian Firm Bids to Create No. 5 Gold Giant

Gold mining company Placer Dome Inc. on Sunday offered to acquire rival AurionGold Ltd. for $1.11 billion in stock, aiming to create a leading worldwide gold producer as prices for the valuable commodity continue to mount.

The offer, if accepted, would create the world’s No. 5 gold mining company, producing more than 3.8 million ounces a year.

It also would form the second-largest mining company in AurionGold’s home country of Australia, with more than 1.2 million ounces of gold mined annually, Placer Dome said.

The unsolicited bid comes as gold prices hovered near fresh highs in recent weeks amid concerns about new attacks on U.S. landmarks, continued violence in the Middle East and the possibility of violence between India and Pakistan.

Those fears have helped boost gold company stocks worldwide, creating an attractive case for further consolidation in the industry.

Concurrent with the announced bid for AurionGold, Vancouver, Canada-based Placer Dome said it continued to expect to produce more than 2.5 million ounces of gold and 420 million pounds of copper this year.

The bid marks the second offer to acquire a large Australian gold mining firm in the last year. Late last year, Denver-based Newmont Mining Corp.’s offer to acquire Normandy Mining Ltd. sparked a heated bidding war with South Africa’s AngloGold Ltd., ultimately won by Newmont for $2.1 billion.

Placer Dome Chief Executive Jay Taylor told Reuters that he was not overly concerned about a rival bid arising for AurionGold because few firms could match the synergies his company offers. Placer Dome already operates two of AurionGold’s major mines under a joint-venture arrangement.

“It’s hard to believe somebody could make a better synergistic case than we can,” Taylor said. “We know each other, and there’s already a level of comfort between the two companies.”

Placer Dome said the unsolicited offer, announced in a public statement Sunday, would exchange 17.5 of its shares for each 100 AurionGold shares.

Under those terms, the deal would value the Australian firm at $2.51 a share, a premium of more than 30% to the company’s closing price Friday.

Harmony Gold Mining Ltd., AurionGold’s leading shareholder, has agreed to support the bid and vote its 9.8% stake in favor of the acquisition, Placer Gold said.

Taylor said the negotiations with Harmony and other shareholders prompted the unsolicited bid.

Taylor said he had not yet had a chance to talk with AurionGold executives but hoped to be able to do so today.

To complete the transaction, Placer Dome would require the support of at least 50.1% of AurionGold’s shares.

Placer Dome said it expected to achieve at least $25 million in annual post-tax synergies from the transaction, helping push the combined companies’ cash cost of mining down to $175 an ounce.

By comparison, gold for June delivery closed at $320.40 Friday in New York.

Australia is the world’s third-largest producer of gold, behind South Africa and the United States, although production there has fallen steadily since 1997, according to a study, released Sunday, by Surbiton Associates Ltd. that showed gold production in Australia had fallen about 10% since peaking in 1997.

Placer Dome said it expected that the deal would add to its earnings by an unspecified amount on the basis of both net asset value per share and cash flow per share.