PERTH (miningweekly.com) – Australian gold producer Lihir has rejected a A$9,2-billion takeover offer from larger rival Newcrest Mining, saying that the deal undervalued the company.

The combination of the two companies would create the world’s fourth-largest gold company, with a portfolio of low-cost, long-life, high-margin assets, Newcrest said in its proposal.

Australia’s number-one gold producer is offering one of its own shares for every nine Lihir shares, as well as A$0,225 cash per share.

The offer represented a 35% premium to Newcrest's and Lihir’s closing share prices on February 12, the last trading day prior to Newcrest’s approach in February, and a 31% premium based on Newcrest's and Lihir’s one-month volume-weighted average price to March 29.

Lihir shareholders would own about 35% of the combined organisation.

But Lihir chairperson Ross Garnaut said that the offer undervalued the company, both in terms of its existing business and growth potential.

“It also did not include a sufficient premium for control,” he said.

“Directors and management made certain that Newcrest was given the opportunity to make an offer that would deliver full value for our shareholders, but the board’s assessment was that the offer ultimately received was inadequate. We felt we had an obligation to shareholders to reject the offer.”

Garnaut also said that the board believed that Lihir was undervalued in the marketplace, and that it had made management changes to rebuild market confidence and correct the valuation shortfall.

“In that context, it was clear to the board that the Newcrest offer failed to provide full value for the underlying assets, with an appropriate takeover premium.”

Newcrest chairperson Don Mercer said that while the company believed the logic of the combination of the two companies was “compelling”, it was not a “must do” transaction for Newcrest.

“We will only pursue if we believe it will create value for Newcrest shareholders, and is supported by Newcrest and Lihir shareholders.”

HUNT TO LEAD LIHIR

Lihir also appointed former diversified miner BHP Billiton senior executive, Graeme Hunt as MD and CEO of the company.

Hunt has previously spent 34 years with BHP, starting as in metallurgical training, and moving up to becoming president of the iron-ore division, and later president of the global aluminium division.

His final role at BHP was as president of uranium. Hunt left BHP in March last year.

Lihir owns operations in Papua New Guinea, Australia and Sierra Leone. Last year, the company produced 1,12-million ounces of gold, with production in 2010 forecast to be between 960 000 oz and 1,06-million ounces.

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