Newmont wins the 'battle of Normandy'

SYDNEY, Jan. 22 (UPI) -- When a taxi driver told me last April, he wished he had some money so he could invest in gold stocks, I of course nodded politely and dismissed him as an ignoramus. At the time, almost everyone was writing off the gold sector as a lost cause.

And, hey, when your taxi driver starts giving you tips, it's time to get out of the market. Right?

Of course, since that time, prices of Australian gold stocks have soared to 52-week highs. Many have seen their prices more than double. Driving up the prices has been the quest for consolidation in the gold industry, with the latest chapter being the global tug-of-war for control over Australia's largest gold miner, Normandy Mining, which seems finally to be at an end.

Last Friday, South Africa's AngloGold conceded defeat to U.S. giant Newmont Mining Corp in what had been dubbed the "battle of Normandy," a tussle that began when Newmont trumped AngloGold's $3.2 billion (U.S. $1.7 billion) offer for Normandy in November.

AngloGold progressively increased its bid to $4.2 billion ($2.17 billion), but was outmuscled by Newmont and, when push came to shove, ran out of financial puff. In the end, Newmont's $4.6 billion (U.S. $2.4 billion) offer won the day.

The merger will make Newmont the world's largest gold miner in reserves and output, leap-frogging Canada's Barrick/Homestake and AngloGold. It will benefit from Normandy's lower production costs and strong exploration potential, and control Normandy 's operations in Australia, New Zealand, the United States, Canada, Turkey, Chile, Brazil and the Ivory Coast.

The merger will lift Newmont's annual gold production to 8 million ounces and expand its reserves to 97 million ounces.

Newmont's chief executive, Wayne Murdy, expects the deal to take about six months to complete.

"We took a few minutes on Friday to pat each other on the back and then we said, 'Now the work begins,'" Murdy said.

While Newmont won, some see their offer as expensive.

"It's a pretty over-priced bid," said one resource analyst at a Sydney broking house. "We had a value of $1.30 (67 U.S. cents) a (Normandy) share in net present value terms last year, and thought that was generous. The current price is $2.01 (U.S. $1.04). At that price, it's hard to see the value."

Clearly, AngloGold agrees. But while it has lost out on Normandy, AngloGold -- which today announced it has sold its stake in Normandy for $210 million (U.S. $109 million) -- signalled that it won't be sitting on its hands. Chief executive Bobby Godsell says the battle for Normandy has given considerable impetus to the process of consolidation in the gold industry and his firm is still on the look-out for "value-creating consolidation."

It is, after all, a matter of survival. The gold price has fallen from U.S. $800 an ounce back in 1980, to about U.S. $280 today, despite increasing demand. To survive, gold producers, like AngloGold, not only have to cut internal costs, they also need to buy out rivals to take a stronger control over global output and pricing, and benefit from "economies of scale."

"The would-be bridegroom will be looking for a new bride," says another local analyst. "A new Australian partner is on the cards."

With the Aussie dollar still hovering around 52 cents, Australia's gold companies are as tempting as ever. You only need to look at the meteoric rise in Australia's gold stocks to see that the market agrees.

On AngloGold's radar screen are Lihir Gold, Boddington, Aurion Gold, Sons of Gwalia, and, particularly, Newcrest, which has an impressive portfolio of world-class projects. In a research note issued in mid-December, BNP Paribas nominated Newcrest as the market's cheapest gold stock in terms of target price to share price.

Newcrest chief executive, Tony Palmer, when recently asked if his firm is a takeover target replied: "You'd have to think so. All the other companies around us, bigger and smaller, are all attracting attention, so you'd have to have your head in the sand if you didn't think Newcrest was going to be a part of all that at some point."

Since BNP issued its research note, Newcrest has soared from $3.91 (U.S. $2.03) to $4.78 (U.S. $2.47). And for those happy to take a punt, the gossip is that the stock still has some way to go.

As for me, I'm on the look-out for that taxi driver with the eye for the "next big thing."