Oceana-Climax merger seen as key consolidation move

The merger of Oceana Gold, which operates mainly in the South Island, with Climax Mining is seen as a key move in consolidation of the industry in Australasia.

Plans to merge the companies, retaining the name Oceana Gold, were announced yesterday. The resulting gold producer and developer with a market value of about A$523 million ($646.8 million), will have reserves of 4.8 million gold equivalent ounces.

The Sydney Morning Herald today said the merger would create 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.

Global giants in the gold industry, Newmont, Barrick and AngloGold, had already acquired the best of Australia's multi-mine operators -- with the exception of Newcrest, the newspaper said.

But the enlarged Oceana would make the host of single mine operators its prime focus as it made a bold run to quickly become a 1 million ounce-a-year producer.

Success in the merger -- the parties were claiming the support of their respective shareholder bases -- would create a "globally significant gold company" with a reserve base of 4.8 million ounces of gold equivalent.

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

Dinkidi was expected to be in production in mid-2008 and, thanks to its substantial copper credits, was forecast to be a low-cost producer, low enough to drag overall costs for the merged group back from US$250 an ounce to less than US$100 an ounce.

But because Dinkidi was in the Philippines it was not highly valued in the Australian market, which was a key reason Climax was keen to wrap itself into the bigger Oceana.

The Australian newspaper said the deal would introduce Oceana to political risk but dramatically lower production costs.

The merger represented another consolidation by small-cap miners anxious to get to a size to attract serious global investment interest.

The combined company would have 300,000oz of gold coming from its New Zealand mines in 2008, along with copper-gold from Climax's Dinkidi operation in the Philippines, for a total of 550,000oz of gold-equivalent.

The share offer by Oceana valued Climax at a 27 per cent premium to the latter's 30-day average price.

Climax chairman Jim Askew conceded this lower-than-usual premium represented a "Philippines discount", and added: "We're realistic."

Oceana owned the Macraes mine near Dunedin, which since 1990 had produced 2 million ounces of gold. Underground mining there would start late next year.

In the meantime, Oceana would this year commission the Globe Progress mine in the historic Reefton goldfield, also on the South Island, with 548,000oz of reserves.

Climax's Dinkidi copper-gold mine north of Manila had 3.8 million ounces of gold and 470,000 tonnes of copper.

Under the deal, Climax shareholders will receive 0.62 of an Oceana share for each Climax share. Former Climax shareholders will own about 44 per cent of the merged company.

A meeting of Climax shareholders and option-holders is expected to be held in late October 2006 to vote on the proposed transaction.

Oceana is Melbourne-based but listed on both the New Zealand and Australian stock exchanges.

- NZPA