there we have it. cah is the target, page-5

ST BARBARA chief executive Tim Lehany says his $350 million tilt for Catalpa Resources has the support of his big shareholders, despite some analysts declaring it dilutive for his company.

The Melbourne-based gold explorer, which aims to create a leading mid-tier Australian gold producer, revealed its cash-and-scrip bid on Friday after unsuccessfully trying to engage the Catalpa board for more than a month.

Catalpa says it will engage with St Barbara, but will also seek other buyers.

While many analysts were positive, Alex Passmore at Patersons Securities and Levi Spry at Deutsche Bank said the bid was dilutive for St Barbara, particularly in the short term.

Mr Lehany denied this as did the major shareholder, Britain's M&G Group, which holds 18.1 per cent of the company.

"We've spoken to some of our largest shareholders, who are supportive of this proposal, and our largest certainly is," Mr Lehany told The Australian.

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Speaking to St Barbara's biggest shareholders will go a long way towards convincing the majority of the register, given the top 10 shareholders own more than half of the company.

Mr Lehany, 52, has been at the the helm of St Barbara for two years and appears to have the company running smoothly.

Before his watch, the company gained an unwanted reputation for missing guidance on the Leonora and Southern Cross mines it bought from Sons of Gwalia.

Now it is time to expand.

"If you look at the Australian gold scene in terms of annual gold production, there is a huge, gaping space in the middle," the former Newcrest Mining chief operations manager said.

"You've got Newcrest, which is now the fourth-largest gold producer in the world, and then a lot of white space between companies like Alacer, St Barbara and Oceana." Investors, particularly those in North America and Europe, were looking for a bigger, mid-tier Australian goldminer to invest in, and this was what the proposed tie-up was targeting, Mr Lehany said.

If it bought Catalpa, St Barbara's 2011-12 production would be about 480,000 ounces of gold, making it second only to Newcrest, which will produce about 3 million ounces next fiscal year.

As well as ramping up size, there would be synergies -- uncalculated at this stage, Mr Lehany said -- between St Barbara's Southern Cross operations and Catalpa's Edna May mine.

St Barbara is offering 96.13c and 0.435 St Barbara shares for each Catalpa share in a deal that valued the target at a 41 per cent premium to its price before the offer was revealed and a 26 per cent premium on the 30-day weighted average share price.

Mr Lehany said the offer was compelling for Catalpa shareholders.

"We've got strong operating capability in open-pit and underground mining, we've got a proven track record in the development of underground mines and we bring real financial strength to the combination, which will give it the flexibility and capacity to undertake further growth," he said.

St Barbara, whose Marvel Loch operations at Southern Cross are due to finish in 2012-13, has been doing its own valuations on Australian assets since late 2009 as it looked to replace declining production and create a bigger mid-tier mine.

While St Barbara's current production profile slows a drop in production for the combined company after next year, Mr Lehany said the aim was to keep production at 500,000 ounces a year.

Potential extension of St Barbara's Southern Cross production and boosting output at Gwalia are part of plans not included in the current production profile, which shows the merged company's production dropping from 477,000 ounces in 2011-12 to 412,000 the year after.

If the takeover goes ahead, St Barbara is expected to have about $120m of net debt, and with about $190m of cashflow expected in 2012-13, it could pursue other takeovers or expansion opportunities.

Mr Lehany said that while opportunities in Australia were rare, there were interesting prospects in Indonesia, the Philippines and Papua New Guinea.

Catalpa shares rose 23 per cent to $1.69 on Friday after the bid was revealed, but remained below the $1.81-a-share implied value of the bid. Catalpa's after-market declaration on Friday that it would actively seek better offers while engaging with St Barbara could provide another boost to shares today.