20 March 2008 - LGL and Equigold to merge
Lihir Gold Ltd (LGL) and Equigold NL (“Equigold”) are to merge their businesses, creating a global pure gold company with a diversified portfolio of high quality operations, a strong financial base and an exceptional growth profile. The combined group will have world class assets in Australia, West Africa and Papua New Guinea, producing in excess of 1.2 million ounces of gold a year from 2009 at a cash cost in the lowest quartile of global producers. The market capitalisation of the combined group will be approximately A$9 billion (based on the closing share price of LGL shares as at 19 March 2008), securing its position in the top 30 companies in Australia and among the world’s largest gold producers. The Merger Proposal The merger is to be achieved through a Scheme of Arrangement, with Equigold shareholders to receive 33 LGL shares for every 25 Equigold shares they own. Based on the closing prices of LGL shares as at 19 March 2008, the day prior to the announcement of the Scheme, the offer values Equigold shares at approximately A$5.33. This represents a premium of: - 24.0% to Equigold’s closing price on 19 March 2008, the day prior to the announcement
- 23.5% to the 1 week VWAP of Equigold shares prior to the announcement
- 35.3% to the 90 day VWAP of Equigold shares prior to the announcement
Compelling Merge The merger will bring significant benefits to each of the companies and their shareholders. Directors of Equigold and LGL have unanimously supported the proposed merger. Equigold Directors intend to vote the shares they own or control in favour of the Scheme (in the absence of a superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Equigold shareholders). For Equigold, the transaction will: - Reduce risk by bringing the company within a major gold producer with a diversified portfolio of high quality assets;
- Enhance financial strength, providing access to LGL’s superior balance sheet position and funding capability to underpin further growth and development;
- Provide financial resources to advance exploration on the company’s vast and highly prospective exploration tenements in Ivory Coast;
- Enable shareholders to participate in the growth and expansion of the LGL assets at Lihir Island and at Ballarat in Victoria;
- Increase market appeal and liquidity of their investment. Equigold’s shareholders can expect to benefit from exposure to North American capital markets. LGL is listed on both the Toronto and NASDAQ exchanges and is subject to research published by a number of leading international security houses;
- Increase leverage to the rising gold price, by gaining exposure to LGL’s massive gold resources and reserves and completely unhedged position; and
- Deliver shareholders a significant merger premium.
For LGL, the merger will: - Provide important diversification benefits, immediately adding cashflows from Equigold’s Mt Rawdon operation in Queensland, with Bonikro in Ivory Coast to be in production by the end of July;
- Establish a substantial base for growth in the highly prospective greenstone belt in Ivory Coast, where Equigold has reported promising drill results on extensive exploration tenements, which are expected to lead to significant growth in resources and reserves;
- Increase management capability and operational strength through the addition of high quality executive management and production teams at Mt Rawdon and Bonikro;
- Increase net present value per share, creating strong financial returns for shareholders.
Following the merger, LGL will have approximately 25 million ounces in reserves and operations at Lihir Island in PNG, Ballarat in Victoria, Mt Rawdon in Queensland and at Bonikro in Ivory Coast, Africa (for further detail, refer to Appendix B). The merged group will have an exceptional growth profile. The Bonikro project, in which Equigold holds an 85% share, is expected to be commissioned in July and will produce approximately 140-150,000 ounces in 2009. At Ballarat, commercial production is scheduled to commence in the fourth quarter of the current year and the mine is expected to produce around 200,000 ounces per year for more than 20 years. The Mount
Rawdon mine is anticipated to produce in the vicinity of 100,000 ounces of gold per year for the next 10 years. And at Lihir Island, production is forecast to be at record levels of between 700,000 – 770,000 ounces this year, increasing to approximately 1 million ounces by 2011 following a US$696 million expansion of processing capacity. The merged group will maintain a competitive cost position, with LGL’s Lihir Island and Ballarat production estimated to be at a total cash cost of less than US$350/oz long term, and Equigold production at approximately US$330 per ounce for the long term from 2009. In addition, the combined group will possess a highly prospective exploration portfolio: 1. At Lihir Island, a recent drilling program has identified a major mineralised zone between the existing Lienetz and proposed Kapit pits, which is likely to lead to a significant increase in resources. 2. At Ballarat, LGL has identified exploration potential totaling 9.2 million ounces in the Ballarat region. 3. In Ivory Coast, Equigold holds exploration leases covering some 15,000 square kilometres of the most prospective regions of the Birimian greenstone belt. Excellent results have been received from extensive drilling at these tenements, which are expected to lead to a considerable increase in resources and project development opportunities in the coming years (Further details of drill results are available from Equigold's December 2007 quarterly report available on their website at www.equigold.com.au). Directors and Management Equigold Directors, who in aggregate hold approximately 10.4% of the shares in Equigold, intend to vote the Equigold shares they each hold or which are held on their behalf, in favour of the merger in the absence of a superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Equigold’s shareholders. The Chairman and founder of Equigold, Mr Nick Giorgetta, has granted, through a related entity Rollason Pty Ltd, LGL a call option which enables LGL to acquire all of the Equigold shares held by Rollason (approximately 9.17%) at the same price as any competing offer, during a stipulated time period. It is proposed that Mr Giorgetta will maintain an ongoing role in the new organisation.
Equigold Managing Director, Mr Mark Clark, and Executive Director Mr Morgan Hart, are to join the LGL executive team, reporting to Chief Executive Arthur Hood. The headquarters of LGL will remain in Port Moresby, with the corporate office in Brisbane, Australia.
LGL Chairman Ross Garnaut said the merger would lead to the creation of an exciting new global gold major. “This merger adds considerable value to both companies,” he said. “The combination extends the strengths of one of the major gold groups, with a diversified portfolio of producing mines, low cash costs, a strong growth pipeline and highly prospective exploration acreage. “The new entity will be well placed to take advantage of on-going strength in the gold price to deliver increased returns to shareholders. We will have a robust balance sheet, virtually no hedging and an excellent growth profile,” he said. LGL Chief Executive Arthur Hood said the merger would lead to a reduced risk profile for the merged company, by adding important diversification benefits. “This new company will hold a portfolio of long life, high quality assets in diverse geographic locations, effectively eliminating single mine asset risk and leading to improved valuations for the combined group,” he said. “The merger will bring together the established operations at Lihir Island and Mt Rawdon. Bonikro will be in production within the next few months, followed by Ballarat by year end. The benefits of recent
improvements at Lihir Island will be seen in the full year performance, and we have commenced the next stage of development which will see production at Lihir Island lifted to one million ounces a year by 2011. The vast exploration potential in Ivory Coast will add major growth opportunities in the future. “Furthermore, the addition of the proven management team at Equigold will add executive strength to LGL and ensure that we can deliver the exciting projects we have in train. The transaction meets all of our M&A criteria,” he said. Equigold Chairman Nick Giorgetta said the merger was a logical step for Equigold as it moved to the next stage of its development. “This is an excellent deal for our shareholders,” he said. “It secures the future of the organisation, delivers a substantial merger premium, and provides an opportunity to participate in the growth and prosperity of the merged group. Furthermore, it gives us the financial muscle required to realise the full potential of our exploration tenements in Ivory Coast.” Merger Conditions The proposed merger is subject to a number of conditions including the approval of Equigold shareholders, regulators and the Federal Court. Equigold shareholders will be provided with a Scheme Booklet outlining the proposal in greater detail which will include an independent expert’s report prepared by KPMG. This is expected to be provided to shareholders during April/May 2008 with the meeting of Equigold shareholders to approve the proposal to be held during May 2008. The transaction is expected to be completed by early June 2008. Each party has agreed to pay a break fee to the other party equal to $11.3 million in certain circumstances. Further details of the conditions precedent and key terms of the Merger Implementation Agreement are summarised in Appendix A. Following all required approvals, all shares in Equigold will be acquired by a wholly owned subsidiary of LGLand Equigold will be delisted. Equigold shareholders are not required to take any action at this stage in relation to the scheme of arrangement. Advisers LGL is being advised by Caliburn Partnership and Blake Dawson. Equigold is being advised by Euroz Securities and Corrs Chambers Westgarth.
Contact details For further information, please contact:
LGL
Joe Dowling
LGL General Manager Corporate Affairs
0421 587 755
Josie Brophy
LGL Communications Officer
0448 177 502
Joel Forwood
Manager Investor Relations
0438 576 879 For more information, download the full announcement.  Download [126 KB]
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