Newcrest to buy Lihir for $9.5 billion

Newcrest Mining Ltd has agreed to buy local rival Lihir Gold Ltd for an increased offer of $9.5 billion to create the world's fourth biggest producer of the precious metal.

Shares in Lihir jumped about five per cent and Newcrest slipped two per cent after the miners said Newcrest had offered to pay a combination of shares and cash for all of Lihir's stock.

Newcrest chairman Don Mercer said the combination of Newcrest and Lihir had compelling strategic logic and merit.

"The combined organisation will become Asia-Pacific's leading gold producer and it will become the world's fourth biggest gold company," Mr Mercer said in a telephone conference on Tuesday.

"It will have an absolutely stand-out portfolio of long life, high-margin tier one gold assets."

Australia's two largest gold miners are joining forces as the price of the metal remains near record levels. The increased scale and combined resources will allow the merged company to operate the various types of gold mines around the world.

"We are a mine and a mining company that can actually extract anything we find, be it underground, be it open-cut," Newcrest chief executive Ian Smith said.

Newcrest operates gold and copper mines in Australia, Indonesia, Papua New Guinea and Fiji while Lihir operates mines in Australia, Papua New Guinea and the Ivory Coast in West Africa.

Mr Smith said the companies expected synergies, or extra profit from the merger, of $85 million - a number which could be higher once management understands the combined miner better.

Lihir chairman Ross Garnaut said there was strong strategic logic in combining the two companies.

"We are therefore pleased to have secured an improved financial proposal that we can recommend to our shareholders," Dr Garnaut said.

"Our shareholders will receive a highly attractive premium and, by receiving Newcrest shares, will participate in the benefits created by the combination of the two companies."

By 1147 AEST, Lihir shares had risen 14 cents, or 3.81 per cent, to $3.81, close to a two-year high, while Newcrest had fallen $1.23, or 3.84 per cent, to $30.83.

The combined Newcrest-Lihir company will only be smaller than Canadian miners Barrick Gold and GoldCorp, and US-based Newmont Mining.

Lihir shareholders will receive one Newcrest share for every 8.43 Lihir shares they own, plus 22.5 cents cash per share less any interim dividend declared or paid by Lihir for the half year ending June 30, 2010.

The implied offer price valued Lihir at about $9.5 billion, the companies said in a joint statement, representing a 6.4 per cent improvement on Newcrest's previous offer announced on April 1.

Lihir directors have unanimously recommended shareholders vote in favour of the scheme in the absence of a superior proposal and subject to an independent expert's opinion that the scheme is in the best interests of shareholders.

Lihir shareholders can choose to adjust the combination of cash and Newcrest shares received as part of the takeover and will own between 35.5 per cent and 36.8 per cent of the combined organisation, depending on what shareholders choose to receive.

Under the merger implementation agreement, Lihir retained the right to continue existing discussions with third parties until June 8.

Grant Samuel has been appointed to prepare the independent expert's report, which will include consideration of the possible effect of the proposed resources tax announced by the federal government on Sunday.

Newcrest is being advised by Lazard, Merrill Lynch and Allens Arthur Robinson.

Lihir is being advised by Greenhill Caliburn, Macquarie Capital Advisers Ltd and Blake Dawson.

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