Norton Gold Fields investors may need convincing on Zijin...

Norton Gold Fields investors may need convincing on Zijin bid

(The Australian)
Updated: 2012-04-05 09:39
Counter:38

CHINESE investors may be familiar with our coal, iron ore and other exotic elements, but so far they've shied from our gold sector, partly because they've got plenty of their own lustrous stuff.


But there're signs the Chinese are overcoming their Aussie gold aversion, with Zijin - China's biggest gold miner - lobbing a 25c a share indicative and non-binding proposal (plus a 2c special div) for Norton Gold Fields, a junior producer in Western Australia.


Zijin had already built up a 17 per cent stake in Norton, so in football parlance it had the sit on this one.


According to Norton chief Andres Labuschagne, Zijin approached the board in January with a "highly conditional" proposal that was negotiated to the point of being an "attractive offer".


Still, the board is keeping its options open and there's a fair way to go in terms of Chinese and local regulatory approval. Investors will be cognisant that Zijin last year walked away from a proposed $545 million offer for Indophil, part-owner of the Tampakan gold-copper project in the Philippines.


Zijin also last year bought 60 per cent of central Asia miner Altynken, which demonstrates a penchant for locales even wilder and woolier than Kalgoorlie.


"There's no guarantee this will end up in a formal offer and we will meet suitable terms," says Labuschagne (who, by the way, shares line honours with Elmer Funke-Kupper as the most exotically monikered CEO of a listed company).


"That said...we are confident we can put it to closure."


It appears that Zijin wants to use Norton as a springboard to build further production in Australia, possibly using Norton as an ongoing listed entity (the offer is subject to 50.1 per cent acceptance).


The timing of Zijin's move is intriguing in that it comes well into the gold bull cycle. There's also an opportunistic flavour in that Norton has recently overcome a dud financing position - a legacy of the Lehman Brothers failure - which left it with uncomfortably high debt.


With cash costs of $970 an ounce, Norton isn't the cheapest producer around. The company plans to increase to 224,000oz a year by 2016, which would reduce per-ounce costs to $850.


Zijin's offer looks generous at a 46 per cent premium to the 18.5c a share Norton shares were trading at before Friday's trading halt. But loyal investors may well hold a contrary view in that the shares hit 24c only in November 2011, and the company's production profile is improving.


This one's no fait accompli, but we'll ascribe a 'hold' call.