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Why AOR will be a $5.00+ stock

  1. 9,081 Posts.
    This article (although lengthy) is worthy of a close read - for me it explains why AOR will be $5.00 + soon

    Tuesday May 28, 6:20 AM
    WRAP: Placer Dome Reignites Australian Gold Rush
    By Andrew Trounson

    MELBOURNE (Dow Jones)--

    Canada's Placer Dome Inc. (PDG) Monday launched a A$2 billion hostile bid for major Australian gold miner AurionGold Ltd. (A.AOR), reigniting takeover fever in Australia's gold sector.

    The bid comes just four months after the end of a A$4.5 billion takeover battle between U.S-based Newmont Mining Corp. (NEM) and South Africa's AngloGold Ltd. (AU) for Australia's largest gold miner Normandy Mining. Newmont won that battle, but had to twice raise its offer to beat off AngloGold.

    And Placer Dome may yet face a similar tussle with the likes of Barrick Gold Corp. (ABX) and AngloGold being tipped as potential counter-bidders, despite Placer's share-swap offer being pitched at a 30% premium to AurionGold's closing price Friday.

    However any rival will find it tough to beat the US$25 million in annual savings Placer expects to extract from a merger with AurionGold.

    It is a natural fit for Placer with the two companies being joint venture partners at both the Granny Smith mine in Western Australia and the Porgera mine in Papua New Guinea.

    The fragmented world gold industry is fast consolidating as major producers in North America and South Africa scramble for scale to reduce costs and gain greater relevance to global fund managers.

    In bidding for AurionGold, Placer is trying to make up some ground lost to sector heavyweights Barrick and Newmont that have jumped ahead of their peers in terms of size. While Newmont has secured a three way merger with Normandy and Canada's Franco-Nevada Mining Corp., Barrick had already set the pace through its US$2.2 billion merger last year with Homestake Mining Co.

    After a day in talks with its advisers, AurionGold responded late in the afternoon with a brief statement that it is examining the bid and will provide shareholders with advice "as soon as appropriate." But with the help of adviser Credit Suisse First Boston, Managing Director Terry Burgess is likely already flicking through his diary for the telephone numbers of potential counter bidders.

    The takeover would propel Placer Dome by two places to be the world's fifth-largest gold miner, boosting the Canadian miner's annual output by 1 million ounces to 3.8 million.

    A key to the success of the bid could be South Africa's Harmony Gold Mining Co. (HGMCY) that has a 9.8% stake in AurionGold and has agreed to back Placer's bid. Harmony isn't betting on a better offer, even though the Placer deal falls short of locking up the Harmony stake as it is free to accept a higher rival bid.

    "We aren't talking to anyone at all, we were approached by Placer and it's an agreement and we stick by our agreement," Harmony executive director Ted Grobicki told Dow Jones Newswires late Monday.
    Placer, with a market capitalization of US$4.7 billion, is offering 17.5 of its shares for every 100 AurionGold shares, valuing the Australian miner at A$4.51 a share, compared with its closing price Friday of A$3.48.
    Lihir, Newcrest Rally On Speculation
    AurionGold shares duly shot up A$1.05, or over 30%, to close at A$4.53.

    However the value of the bid will fluctuate in line with Placer's share price, which may come under pressure later Monday when the North American market reacts to the bid.

    At one stage speculation of a counter-bidder had AurionGold shares as high as A$4.60. "This is going to be a pretty hot and liquid game for a while," a senior institutional dealer said of early demand for AurionGold shares. The dealer said U.S. fund managers, in particular, will be keen bidders for the stock as it can easily be converted into Placer Dome equity, which they know well.

    The bid also put Australia's other major gold miners in the spotlight with takeover speculation powering Newcrest Mining Ltd. (A.NEW) 9.9% higher to A$7.66 a share, valuing it at A$2.18 billion. Papua New Guinea-based Lihir Gold Ltd. (A.LIH) jumped 6% to A$1.58, valuing it at A$1.80 billion.

    Lihir would be the next obvious target for Placer given its exposure to PNG. Last month Newmont doused speculation that it would bid for Lihir by selling its 9.7% stake, while 16.7% shareholder Rio Tinto PLC (RTP) is believed to be a willing seller at the right price. AngloGold is also a possible bidder.

    About 28 million Lihir shares changed hands, and according to the head of one equities desk "every firm on the street is in there."

    Newcrest is an attractive target given its extensive growth profile. Newcrest is planning a A$1 billion redevelopment of the closed Telfer gold mine in Western Australia. A revitalized Telfer could produce about 1 million ounces annually in its early years.
    "The acquisition of AurionGold is consistent with Placer Dome's operationally focused strategy of owning and efficiently managing world class assets, and simplifies and streamlines our ownership of existing assets in the region," Placer Chief Executive Jay Taylor said.
    Harmony Chief Executive Bernard Swanepoel backed Taylor, saying "Placer Dome is by far the logical owner of AurionGold."

    Placer's bid is no surprise given the shared assets of the two companies, but is timed to take advantage of the merger of Delta Gold and Goldfields that formed AurionGold in January this year.

    However, by waiting until after the merger Placer is now having to offer a healthy premium to win AurionGold. And it may have to offer more if a counter-bidder emerges.

    "On valuation terms (the offer) is a good price, but you would be a little bit naive if you thought this was the last and only bid. There are certainly other players who are interested in having a look," said Daiwa Securities SMBC analyst Mark Pervan.

    Based on North American share price multiples, there is room on the upside with analysts saying AurionGold could be valued at over A$5.00 a share.

    "If you applied the North American multiples to Australian stocks you could argue that the AurionGold share price might be worth north of A$5.00," said UBS Warburg gold analyst Shaun Giacomo.

    AngloGold May Yet Try Again
    Top of the list of rival bidders is AngloGold. While observers could be forgiven for thinking that AngloGold Chief Executive Bobby Godsell would be too punch drunk from the Normandy battle to reenter the fray, the South African miner does have gold operations in Western Australia that could justify a bid for AurionGold.

    Also, AngloGold's failure to capture Normandy leaves it still looking for acquisitions to diversify out of South Africa, and attractively priced Australian assets are being quickly snapped up.

    Barrick, the world's largest gold miner in terms of market capitalization, also has operations in Western Australia in the same areas as AurionGold and will also likely be interested in bidding.

    Placer, ironically, is being advised by Macquarie Bank, the same corporate adviser that ran Normandy's successful auction.

    In addition to Granny Smith and the nearby Wallaby deposit, AurionGold has a 25% stake in the Porgera gold mine in PNG in which Placer holds 50% and is operator. The remaining 25% is owned by Oil Search Ltd. (A.OSH), which is expected to sell its stake to focus wholly on oil and gas operations.

    AurionGold also owns the Kanowna Belle, Kundana, and Paddington mines in Western Australia, and the Henty mine in Tasmania.

    Placer Dome will review all the assets should it succeed in the bid, but at present is happy with AurionGold. Taylor told reporters: "Right now, I like the asset portfolio very much."

    The offer is subject to conditions including acquisition of at least 50.1% of AurionGold's shares outstanding and Australian Foreign Investment Review Board approval.

    AurionGold would add a further 6.1 million ounces to Placer's base of 44.5 million ounces of proven and probable gold reserves.

    In terms of measured and indicated resources, which is a less definite estimate of gold reserves, AurionGold would add 16.2 million ounces to Placer's resource base of 127.6 million ounces.

    The combined company would have cash costs of US$175/ounce, Placer estimated.
    For the first nine months ended March 31, 2002, AurionGold posted a profit of A$42 million on revenue of A$304 million.

    -By Andrew Trounson; Dow Jones Newswires; 61-3-9614-2664; [email protected]

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