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17 October 2006
JOINT ASX ANNOUNCEMENT
LIHIR AND BALLARAT TO MERGE
Lihir Gold Ltd and Ballarat Goldfields NL have proposed a merger of the two
companies, creating a major Asia-Pacific pure gold producer.
The combined company will have two world class assets in Australia and Papua New
Guinea, a strong growth profile, reducing costs and significant exploration opportunities.
The company is expected to achieve annual gold production of more than 900,000
ounces in 2008, around 1 million ounces in 2009, and well in excess of 1 million ounces
per annum thereafter.
Importantly, the transaction also will secure the future of the Ballarat operation by
providing the financial resources required to take the project to full development.
The Merger Proposal
The merger will be achieved through a scheme of arrangement (Scheme).
Under the Scheme, Ballarat shareholders will receive 5 Lihir shares for every 54
Ballarat shares held which equates to a value of 28.8 cents per Ballarat share based on
the closing price of Lihir’s shares on the day prior to the announcement of the
transaction. This offer values Ballarat at $350 million, based on its fully diluted share
capital.
This offer price represents a 28% premium to the last traded price of Ballarat prior to its
trading halt on 13 October 2006.
Based on the last traded price of Lihir shares, at the completion of the Scheme, the
combined company will have a market capitalisation of more than A$4 billion, with
Ballarat shareholders holding approximately 8% of the combined group.
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It is proposed that the two Non-Executive Ballarat Directors, Alister Maitland and Mike
Etheridge, will join the Lihir Board of Directors, and Ballarat’s existing management will
join the combined company’s management team, under Chief Executive Officer Arthur
Hood.
Ballarat Chief Executive Richard Laufmann will be appointed as the merged company’s
Executive General Manager Australian Operations and Business Development, and will
continue to be directly responsible for the Ballarat operation.
The corporate head office of the combined entity will be in Brisbane and operational
headquarters of the Ballarat mine will remain in Ballarat.
The proposed acquisition is subject to the approval of Ballarat shareholders and the
Supreme Court of Victoria. Ballarat shareholders will be provided with a Scheme
Booklet outlining the proposal in greater detail which will include an independent
expert’s report prepared by Grant Samuel & Associates Pty Ltd. This is expected to be
provided to Ballarat shareholders during December with the meeting of Ballarat
shareholders to approve the proposal to be held during January 2007.
Ballarat Directors’ Recommendation
Ballarat's directors intend to unanimously recommend that shareholders vote in favour
of the scheme in the absence of a superior proposal and provided that Grant Samuel
determines that the proposal is in the best interests of shareholders.
Ballarat Funding
Lihir is committed to the development of the Ballarat East gold project in accordance
with Ballarat's development plans over the next 18 months which have been previously
announced to the market.
To cover interim funding requirements for the Ballarat East gold project development
during the period up to the Ballarat shareholders' meeting to approve the Scheme, Lihir
has agreed to provide Ballarat with A$41.7 million through the unconditional
subscription for 149 million Ballarat shares at 28 cents per share.
Compelling Merger
Lihir Chairman, Dr Ross Garnaut, said that for both Lihir and Ballarat, the merger was
compelling.
“The deal creates genuine value for shareholders of the merged group, by creating a
Tier One Asia-Pacific gold producer with strongly growing production,” he said.
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“This merger will take Lihir into a new era in its development, building on the great
progress that has been achieved during the past few years, and consistent with our goal
of developing a diversified, profitable, pure gold producer,” he said.
Mr Hood said the merger established a combined entity with significant exploration
upside, expansion potential and long mine life.
“The combination of these two companies will create a major new force in the gold
sector and an attractive investment option for global funds looking for pure gold
exposure,” he said.
“Furthermore, Ballarat’s management brings to the team valuable complementary
underground mining skills that will advance our expansion strategy and provide
enhanced management capability.”
Mr Laufmann said the merger represented a landmark in the development of the
Ballarat project.
“This merger secures the future of the Ballarat operation. It means that the shareholders
and employees can be confident in the long term future and prosperity of this operation.
“As a cornerstone of a larger, multi-mine company, we will have the financial resources
required to ensure that this project is properly developed,” he said.
Conditions to the Scheme
The principal conditions to the implementation of the Scheme are the approval of
Ballarat shareholders, the Supreme Court of Victoria, and applicable regulatory bodies.
Merger Implementation Agreement (MIA)
Lihir and Ballarat have entered into the MIA under which they have agreed to proceed
with the merger by way of the Scheme. Implementation of the merger is conditional on
the satisfaction of a number of conditions precedent. The conditions precedent and key
terms of the MIA are summarised in Appendix A.
Following approval of the Scheme by Ballarat shareholders and the Court, all shares in
the company will be acquired by Lihir and Ballarat will be delisted.
Ballarat shareholders are not required to take any action at this stage in relation to the
scheme of arrangement.
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Advisers
Lihir is being advised by Caliburn Partnership and Blake Dawson Waldron. Ballarat is
being advised by RFC Corporate Finance Ltd and Baker & McKenzie.
Contact details
For further information, please contact:
Lihir Gold Ltd
Joe Dowling
Manager IR
0421 587 755
Josie Brophy
Communications Officer
0448 177 502
Ballarat Goldfields
Joel Forwood
Manager Corporate and Markets
(03) 5327 1111
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About Lihir Gold
Lihir Gold owns and operates one of the world’s largest gold mines and processing
facilities on the island of Lihir, 900 kilometres north-east of Port Moresby in New Ireland
province of Papua New Guinea. The company is headquartered in Brisbane, Australia.
Lihir Gold is publicly listed, with 1.28 billion shares on issue and a market capitalisation
of approximately US$3 billion. Lihir Gold’s shares are traded on the Australian, Port
Moresby and Nasdaq stock exchanges.
The Lihir ore body is very large and rich by global standards. According to the
company’s last resource and reserve statement, in February 2005, the estimated
resource is 422 million tonnes averaging 2.95 grams of gold per tonne for 40.0 million
ounces of contained gold. It includes proved and probable reserves of 188 million
tonnes, averaging 3.48 grams of gold per tonne for 21.0 million ounces of contained
gold. This estimate is based on a long-term price assumption of US$380 per ounce.
The Lihir gold mine is an open pit mining operation consisting of three adjacent pits. The
pits supply high grade ore for direct processing and lower grade ore for stockpiling for
future processing. Nearly all of the ore is refractory sulphide ore which must be oxidised
before the gold can be recovered.
The mine has been in operation since 1997 and has produced more than 5 million
ounces of gold. Production for the year ended 31 December 2005 was 596,000 ounces,
with substantially higher production for 2006. Production will increase to more than
800,000 ounces in 2007, following the expansion of the process plant through the
construction of a 3Mt per annum flotation circuit. The company is also currently
evaluating a range of options designed to expand annual gold production to in excess of
1 million ounces per annum after 2009.
Under the current mine plan open pit mining is scheduled to continue at Lihir until at
least 2021, during which period higher grade ore will be fed directly into the processing
plant and lower grade ore will be stockpiled. Processing of lower grade stockpiles will
continue until beyond 2040.
Lihir Gold has a large workforce comprising approximately 1,300 staff and 1,900
contractors. Over 36% of employees are Lihirian Nationals, with a further 54%
originating from other provinces in PNG.
The Lihir Project is located within a geothermally active area that produces a natural
abundance of geothermal steam. Since 2003 Lihir Gold has been harnessing this
underground steam reserve to generate electricity, replacing heavy fuel oil powered
electricity. The company is due to commission its third geothermal power station by the
end of 2006. The new 20 Megawatt (MW) plant will take Lihir Gold’s total geothermal
capacity to 56MW and meet all of Lihir Gold’s current electrical power requirements.
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Geothermal power will save the company an estimated US$20 million per year,
compared to the cost of heavy fuel oil powered generation. The geothermal plant is also
formally certified as a facility that will lead to reductions in greenhouse gas emissions,
enabling the company to generate carbon credits and sell them on global markets. This
is expected to generate revenues in excess of US$5 million per year.
For further information, please visit Lihir Gold’s website at www.lihir.com.pg
About Ballarat Goldfields NL
Ballarat Goldfields has exploration and mining tenements covering the historic Ballarat
East and Ballart West goldfields. Before its premature closure around the time of the
fist world war, the Ballarat region produced over 12 million ounces of gold. Ballarat
Goldfields is seeking to recover gold from the strata beneath the old workings. The
company is headquartered in Ballarat.
Ballarat Goldfields is publicly listed on the ASX in Australia and on AIM in the United
Kingdom and has approximately 1.2 billion shares on issue.
In 2004, for the first time following discovery in the 1850's, the leases over the entire
Ballarat field were consolidated under the sole ownership of Ballarat Goldfields. This
has resulted in Ballarat Goldfields constructing a comprehensive geological model of
the entire field, demonstrating what many had suspected, that Ballarat had massive
unexplored prospectivity. Following a pre-feasibility study, based on Ballarat Goldfields’
geological model, underground development at Ballarat East recommenced in
December 2004. In line with this plan, drilling has continued to increase confidence in
the geological model.
Exploration activities by Ballarat Goldfields have defined an Inferred Resource of 1.4
million ounces at Ballarat East and an additional exploration potential of over 9 million
ounces of gold within the company's Ballarat portfolio.
Ballarat Goldfields completed stage one of the processing plant in December 2005 only
6 months after work began. The plant design is unique and based around Gekko
Systems Ltd gravity technology. Final concentrate treatment will use an inline leach
reactor.
Mine development is continuing with over 5km of development complete to date. The
recent extended mine design will focus on the recently discovered high grade
mineralisation at depth. The extension of the mine will delay full gold production until
2009 and will cost an estimated A$120m.
For further information, please visit Ballarat Goldfields' website at www.ballaratgoldfields.
com.au.
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Appendix A
Summary of Key Terms of the Merger Implementation Agreement
Conditions
precedent to the
Scheme
The principal conditions precedent to the implementation of the
Scheme include:
• approvals from applicable regulatory bodies such as
FIRB, ASIC and ASX;
• unanimous approval of the Ballarat Goldfields Board;
• approval by the PNG Exchange Control;
• Ballarat Goldfields shareholder approval of the Scheme at
the Scheme Meeting by the requisite majorities under the
Corporations Act;
• Court approval of the Scheme in accordance with
s411(4)(b) of the Corporations Act;
• no Ballarat Goldfields or Lihir Material Adverse Change
occurs;
• no Ballarat Goldfields or Lihir Prescribed Event occurs;
• the Independent Expert issues a report which concludes
that the Scheme is in the best interests of Ballarat
Goldfields shareholders;
• the MIA has not been terminated;
• no person (other than Lihir, a subsidiary of Lihir or any
institutional or portfolio investor in Ballarat Goldfields at
the date of the MIA) acquires an interest in Ballarat
Goldfields securities so as to have a relevant interest in
10% or more of Ballarat Goldfields shares;
• Ballarat Goldfields has not entered into a Competing
Transaction;
• the Gold Price does not fall below USD 500 per ounce;
• the S&P ASX 200 Index does not fall below 4,500 on any
trading day; and
• all Ballarat Goldfields options to subscribe for shares
having been exercised, cancelled or transferred to Lihir.
No talk and no
shop
obligations
Ballarat Goldfields must ensure that during the period from the
date of the MIA to the earlier of termination of the MIA, the
Second Court Date and 28 February 2007 ("Non-Solicitation
Period") that:
• (No Shop) Ballarat Goldfields nor any of its related parties
directly or indirectly solicits, invites, facilitates, encourages
or initiates any enquiries, negotiations or discussions, or
communicates any intention to do any of these things,
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with a view to obtaining any expression of interest, offer or
proposal from any other person in relation to a Competing
Transaction; and
• (No Talk) Ballarat Goldfields nor any of its related parties
negotiates or enters into, participates in negotiations or
discussions with any other person regarding a Competing
Transaction or potential Competing Transaction or grants
any other person any right or access to conduct due
diligence in respect of Ballarat Goldfields.
Limitations to
no talk
obligation
The no talk provisions summarised above do not apply if Ballarat
Goldfields' Board of Directors has determined, based on the
written opinion of Queen's Counsel or Senior Counsel, that failing
to respond to a publicly announced Competing Transaction would
be reasonably likely to be a breach of their fiduciary duties or
statutory obligations ("Fiduciary Carve-out").
Competing
Transactions
and Lihir's right
to respond
If Ballarat Goldfields is approached by another person during the
Non-Solicitation Period with a Competing Transaction to which
the No Talk or No Shop provisions apply, Ballarat Goldfields must
immediately notify Lihir of the identity of that person and the key
terms of their Competing Transaction and a copy of the proposal.
Ballarat Goldfields must not enter into any agreement in relation
to that Competing Transaction unless, after notifying Lihir, Lihir
has not within 2 business days of notification submitted a written
proposal to Ballarat Goldfields which is on terms no less
favourable than the Competing Transaction. If Lihir's proposal is
on terms no less favourable than the Competing Transaction,
then in the absence of a more favourable offer, Ballarat
Goldfields must proceed exclusively with Lihir's proposal,
otherwise Ballarat Goldfields may proceed exclusively with the
Competing Transaction.
Break fee A break fee of approximately $A3.5 million is payable by Ballarat
Goldfields to Lihir if:
• any director of Ballarat Goldfields makes any public
statement prior to the approval of the Scheme by the Court
to the effect that he or she does not support (or no longer
supports) the Scheme, other than because the
Independent Expert has concluded that the Scheme is not
in the best interests of Ballarat Goldfields shareholders;
• any director of Ballarat Goldfields fails to recommend the
Scheme or, having done so, any director of Ballarat
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Goldfields publicly withdraws or varies his or her
favourable recommendation of the Scheme (or any part of
it) prior to the approval of the Scheme by the Court, other
than because the Independent Expert has concluded that
the Scheme is not in the best interests of Ballarat
Goldfields shareholders;
• any director of Ballarat Goldfields publicly recommends,
promotes or otherwise endorses a Competing Transaction;
or
• before the Scheme becomes effective, a Competing
Transaction more favourable to Scheme participants in
relation to Ballarat Goldfields is announced or open for
acceptance and a person under the Competing Proposal
acquires more than a 20% interest in Ballarat Goldfields'
issued shares,
provided that the break fee will not be payable by Ballarat
Goldfields if:
• prior to any event referred to above occurring, the MIA has
already been validly terminated; or
• the Scheme becomes Effective notwithstanding the
occurrence of any event referred to above.
There are various capitalised terms used in this Summary which are defined in the MIA.
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