Hi Jack
Is this why. THE LEAD
Tuesday, December 23, 1997
$986m US raid on WA mines
By KATE ASKEW, Resources Writer
US goldminer Homestake Mining has taken advantage of a struggling sector to make a $US640 million ($986 million) bid for Plutonic Resources, Australia's second biggest goldminer.
Homestake yesterday announced a friendly share swap offer after winning the support of Plutonic's 35 per cent controlling shareholder, Malaysian Mining Corp. Plutonic operates two of Western Australia's biggests projects.
The offer will see Homestake become Australia's second biggest producer, behind Normandy, and make it the US's second largest producer.
Several Plutonic institutional shareholders - who have seen the value of their Plutonic stock whittled by as much as 36 per cent in the past six months amid falling gold prices - last night said their initial view was that the offer was pitched fairly.
The share swap is pitched at an 86 per cent premium to Plutonic's Friday close of $2.80, and values Plutonic's sharesat $5.20.
Homestake's bid is via a scheme of arrangement. Plutonic shareholders will be offered 34 Homestake shares for every 100 Plutonic shares.
The proposal comes one month after the resignation of Plutonic's long-serving managing director, Mr Ron Hawkes, who would most likely have been without a role within in the combined group.
The deal will find some fund managers unhappy. While the price is acceptable, some will not be interested in ending up with Homestake shares and will seek to sell Plutonic as the price rises in response to the bid. If all Plutonic shareholders took Homestake stock, they would end up with a 30 per cent holding in the US group.
Malaysian Mining is expected to retain its Homestake shares for the foreseeable future.
"It is a good price for Plutonic shareholders relative to where the stock has been trading recently," one Sydney-based fund manager said.
Homestake has operated at a loss in the last six months, posting a pre-abnormal loss of $US34.8 million.
Nevertheless, the combined group will have a reasonably robust financial outlook, despite a low gold hedging. The group will have annual production of about 2.5 million ounces at an estimated cash cost of $US227 an ounce. The gold price is currently $US290.50 an ounce.
The deal also will serve to boost the group's gold resource and reserve base by 30 per cent to about 44 million ounces.
The directors of Plutonic and Homestake have unanimously agreed to the proposal.
"It is a pretty decent premium even if Homestake drops to $US8 tonight," Bell Securities' gold analyst, Mr Keith Goode, said.
"It's way above the odds of any premium that has been paid in Australia before."
Homestake has been hampered by its flagship Homestake mine - which has been in operation for 126 years and is still producing at the annual rate of 400,000 ounces - because it has extremely high costs.
Plutonic in contrast brings several low-cost operations to the table.
It also brings the high-grade Centenary gold development and Plutonic's "sleeper", the Lawlers goldmine, which is expected to increase production to 100,000 ounces next year.
"If you are a Plutonic shareholder, you don't want Homestake shares," one Melbourne-based fund manager said. "You would sell on market, though the US institutional investors are likely to accept Homestake scrip."
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