a quick quide to value destruction

Just a recap of the now infamous stroke of value destruction by the Newcrest Board from 2010 for which they were no doubt handsomely financially rewarded for 'creating' the world's 4th biggest miner (for a very short period of time). To be fair, I am sure that outside and unpredictable and unprecedented and unusual and one off and unforeseen factors have been responsible for the mammoth value destruction for shareholders over the last 3 years. I can just see the NCM board commenting now: "No we could not possibly fall on our swords and all resign because we now have a 3 year plan to turn this ship around and the company needs all our experience,skills and corporate knowldege to get through this temporary moment of operational issues and extraordinary period of low gold prices". "Of course our performance plans and director bonuses will have to be amended and then reset off the current low sub $13 share price. This is only fair and reasonable for us and our families because no one could have forseen this significant share price fall."

01 April 2010: NCM reveal that on 15th Feb they had made an all scrip offer to Lihir of 1 NCM share for every 9.5 LGL share. Offer rejected.

01 April 2010: NCM announce that after 2 days of a short desk top study and very limited due diligence they have made a revised and higher offer to LGL valuing their shares at $3.87 for a transaction value of $9.2B. Offer rejected.

04 May 2010: NCM announce that LGL have accepted a revised and higher offer to LGL valuing their shares at $4.03 for a transaction value of $9.5B. Generous offer accepted.

Some direct text from NCM ASX releases around April/May 2010:

NCM board reveals that Newcrest Mining Limited (“Newcrest”) today confirmed that it approached the Board of Lihir Gold Limited (“Lihir”) with a proposal to combine the two companies to create the world’s fourth largest gold company1, with a portfolio of low cost, long life, high margin assets.

Newcrest believes that the Proposal would be compelling for Lihir shareholders and represents full and fair value for Lihir shareholders.

As disclosed by Lihir, Newcrest has conducted a short desk top and limited high level due diligence on the Lihir Island
operation. Subsequent to this due diligence Newcrest increased the value of its proposal to Lihir. The new proposal envisaged a friendly deal and included requirements of site due diligence and agreement of a Merger Implementation Agreement on terms and conditions customary for transactions of this type and size including theobtaining o f all necessary regulatory approvals.

“While we believe the logic of the combination to be compelling, this is not a ‘must do’ transaction for Newcrest, and we will only pursue it if we believe it will create value for Newcrest shareholders and is supported by Newcrest and Lihir shareholders.” said Newcrest Chairman, Don Mercer.

Newcrest Managing Director and CEO, Ian Smith, said the complementary portfolios, operational and technical capabilities, and the financial strength of both organisations would make the combination attractive to investors, employees, communities and other stakeholders of both companies.

“Together, Newcrest and Lihir would have a lot to offer, with significant opportunities for growth and performance improvement which would benefit all shareholders,” said Mr Smith.

Sorry to all NCM shareholders. Good luck to new ones from today.

Cheers
Sarge