Climax To Merge With Nz's Oceana

Sydney Morning Herald

Wednesday July 12, 2006

Barry FitzGerald

THINGS are about to get a whole lot more interesting in the gold sector thanks to an agreed $523 million merger of Oceana Gold and Climax Mining, creating a new force for industry consolidation in Australia's second-tier gold producers.

Announcing the merger, Oceana chief executive officer and the CEO-elect of the merged group, Stephen Orr, put the sector on notice that the group intended to use its market capitalisation and low-cost production base to force a new wave of rationalisation.

While the global giants in the gold industry, Newmont, Barrick and AngloGold, have already acquired the best of Australia's multi-mine operators - with the exception of Newcrest - the enlarged Oceana will make the host of single mine operators its prime focus as it makes a bold run to become a 1 million ounce-a-year producer in quick fashion.

"We see the merged group as a consolidation vehicle within Australasia - and this is our first step in that strategy," Mr Orr said yesterday.

Success in the merger - the parties are claiming the support of their respective shareholder bases - will create a "globally significant gold company" with a reserve base of 4.8 million ounces of gold equivalent and forecast annual gold production of more than 550,000 ounces of gold equivalent by 2008.

Despite its ambitions in the local market, the merged group does not yet have any Australian production. Oceana is an established gold producer in New Zealand and Climax is developing the Dinkidi gold-copper project in the Philippines.

Dinkidi is expected to be in production in mid-2008 and, thanks to its substantial copper credits, it is forecast to be a low-cost producer, low enough to drag overall costs for the merged group back from $US250 an ounce to less than $US100 an ounce.

But Dinkidi's Philippines address means the project is not highly valued in this market.

That is one of the key reasons why Climax is keen to wrap itself into the bigger Oceana through a scheme of arrangement under which Climax shareholders will get 0.62 of an Oceana share for each share in Climax.

The implied value of the offer is 58c a Climax share. That represented a premium of 27 per cent on the weighted average for the past 30 days. The premium is not as great as it might have been had Dinkidi been located in Australia. Climax closed 3c higher yesterday at 53c a share.

© 2006 Sydney Morning Herald

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