Newcrest expects $8bn Lihir deal

“Newcrest Mining said on Tuesday it has finished due diligence on rival Lihir gold and expects to complete the $8.4 billion deal by September. It added that Lihir should now stop any discussions with third parties.

At least four of the world’s biggest gold producers have looked at the books of Lihir but Newcrest was seen as the only bidder, people familiar with the situation said on Monday.”

Source: Reuters, June 8 2010

Observations:

• Lihir Gold has operations in Papua New Guinea, West Africa and Australia. In 2009 LGL produced 1.1 million ounces of gold.
• The $8bn takeover would be the largest acquisition in the mining industry this year.
• AngloGold Ashanti, Barrick Gold, Newcrest and Newmont mining are all said to have done due diligence on Lihir.
• Lihir’s shares jumped over 30% early april after the company rejected an acquisition proposal by Newcrest valuing the company at AU$9.2 billion, 6.4% below the new offer.

Implications:

• Compared to other metals the gold market is still rather fragmented. It is likely that further consolidation will take place in the industry.
• The current high gold prices do create favourable conditions for acquisitions of companies with high current production, as investments can be paid back quickly. Still, Newcrest will be paying a large premium, as it is willing to pay the highest price of all the gold producers.