Delta offers friendly merger with Ross

Business

Two of Australia’s most successful low-cost gold producers, Delta Gold Ltd and Ross Mining NL, are set to consummate a friendly merger following Delta’s announcement of a scrip takeover bid that values Ross at about Asloo million (KlBB million).

There was some irony in the merger plan since Ross’ share price has taken a battering since late last year because of ethnic problems at its Gold Ridge mine in the Solomon Islands, where the company has managed to increase its low-cost gold production. For Delta the Gold Ridge mine represents an opportunity since it sees the Solomon Islands as one of the top five gold exploration areas worldwide.

Delta is offering one of its shares for every 4.5 Ross Mining shares in a bid to entrench its role as Australia’s fourth largest gold producer with output of more than 700,000 ounces in 2000/01.

Delta said its offer represented a premium of 26 per cent on the closing price

of Delta and Ross Mining on Feb 28, the day before a trading halt requested by Ross, and a premium of 31 per cent on their three month weighted average price. This is Delta’s first takeover bid since South Africa’s Anglo Gold thwarted its takeover offer last year for Acacia Resources.

Following talks held by the two companies since the middle of last year, the board of Ross Mining has decided to recommend that their shareholders accept the Delta offer in the absence of a higher offer. One of Australia’s top gold analysts, Keith Goode of Bell Securities, describing the takeover as a logical move, said it would “result in a better Delta, adding 100,000 ounces to production” and making it more attractive for institutional investors.

However, he felt Delta should have offered a premium of at least 40 per cent as had been the case with the successful Anglo Gold bid for Acacia.

“They (Delta) could easily lose Ross,” he said, adding that four Ross shares for one

Delta share would have represented “a fairer offer”. Ross’ shares have been sliding from a high of Asl in October 1998 with the most recent fall due to civil unrest near its Gold Ridge operation in the Solomon Islands.

After jumping by 24 per cent to A46cents on speculation of a takeover prior to its suspension yesterday, Ross shares today slumped by 6.5 per cent to A 43 cents.

Delta shares fared even worse to shed 9.2 per cent to close at A 51.98 following the announcement of the takeover bid.

However, much of the adverse reaction was due to an announcement that Delta’s net operating profit had dropped by 48 per cent to A 518.6 million in the six months to December after production costs had risen from As2B7 an ounce to A 5453 an ounce.

Delta’s Managing Director Terry Burgess said strong revenue growth would occur during the current half year because of improved gold prices, existing hedging contracts and a full half year contribution from 100 per cent ownership of the Kanowna Belle gold mine near Kalgoorlie in Western Australia.

“Delta’s net profit after tax for the second half is forecast to more than double to about As 23 million,” he said.

On the proposed merger with Ross Mining, Mr Burgess said Delta had reviewed worldwide exploration targets two years ago when the Solomon Islands emerged as one of the top five targets.

“It has good prospectivity for gold and

provides a platform for regional expansion,”

he said. “Ross Mining’s Gold Ridge project in Solomon Islands fits our strategy and will

provide significant low-cost and long-term

production for Delta Gold. It will add an additional one million ounces of unhedged gold reserves and it is also of advantage that Gold Ridge is in the Australasian time zone.”

Delta’s offer, which closes on April 17, is contingent on a minimum acceptance level of 50.1 per cent as well as regulatory approvals. Delta expects to produce 600,000 ounces of gold this year from 9.3 million ounces of resources, while Ross last year produced 152,930 ounces from reserves that exceeded two million ounces. ■

Mining merger ... Delta Gold and Roes Mining NL are set to combine forces