3rd UPDATE: Lihir Rejects A$9.2 Billion Bid From Rival Newcrest

Lihir Gold Ltd. (LGL.AU) on Thursday rejected a A$9.2 billion takeover offer from rival gold miner Newcrest Mining Ltd. (NCM.AU), which it said didn't reflect the value of the company's assets or offer a sufficient control premium.

Port Moresby-based Lihir also announced the appointment of Graeme Hunt as its new chief executive. The former head of BHP Billiton Ltd.'s (BHP.AU) uranium business will walk straight into the middle of a corporate tussle between the two biggest gold miners listed on the Australian exchange.

A soaring gold price has seen both Newcrest and Lihir tipped as potential takeover targets for offshore gold majors who are looking to replace reserves, and analysts said Barrick Gold Corp. (ABX), Newmont Mining Corp. (NEM) and Anglo American PLC (AAL.LN) were among those who could potentially intervene in the takeover tussle.

Lihir said the takeover offer was received on March 29 and was pitched at one Newcrest share for every nine Lihir shares plus 22.5 Australian cents cash per Lihir share, less any interim dividend declared for the first half of 2010.

Based on Newcrest's closing share price Wednesday, the offer values Lihir shares at A$3.87 per share and the company at about A$9.2 billion.

The takeover target's shares closed Wednesday at A$3.03, giving it a market capitalization of A$7.2 billion, but had surged 33% to A$4.03 as of 0432 GMT Thursday, while Newcrest shares were down 1.3% to A$33.26 in the wake of the bid.

Lihir Chairman Ross Garnaut said the board had rejected an offer that was "substantially inadequate", undervalued the company's assets and future growth potential and didn't offer a sufficient premium for control.

Garnaut said there was strategic merit in a combination with Newcrest, which would provide geographical diversification and lower the combined entities' cost of capital, but that the shares-and-cash offer made by Newcrest on Monday was too low.

"There is strategic value in a combination of Lihir and Newcrest, we recognized that in our analysis, and the question is what's fair value for Lihir shareholders, and it just wasn't there," he told analysts on a conference call.

Newcrest Chief Executive Ian Smith said the company is willing to continue discussions with Lihir but is standing by its current offer, which he said is "full and fair" and represents a 32% premium based on the two companies' average share prices over the past three months.

It also represents a 12% increase on an initial proposal Newcrest put to Lihir on Feb. 15, he said.

Smith said he was surprised by Lihir's response to the offer and he believed Lihir didn't fully appreciate the value of the Newcrest assets that underpin the share component of the bid.

"We found the stance this morning a little surprising," he told analysts on a conference call.

"Over the next week and a half, we will be engaging with our major shareholders, explaining the situation, explaining our position, and out of that I am sure we will determine the next steps."

Smith noted that there is more than 50% crossover between the shareholders of Newcrest and Lihir.

He said the takeover bid, which would deliver at least A$85 million in annual synergies, is "compelling but not vital" for Newcrest, which has attractive growth options on a stand-alone basis.

In return for being granted access to carry out limited due diligence, Newcrest has signed a standstill agreement that will preclude them from making a hostile offer for Lihir for nine months but won't prevent them from coming back with a higher friendly offer.

Smith wouldn't be drawn on whether the miner will consider upping its bid, but said a complete bid can only be tabled once Newcrest has been given site access at the Lihir Island mine in Papua New Guinea to undertake detailed due diligence.

Citi analysts say Newcrest is more likely to wait for nine months and go hostile with its current offer than to make a higher friendly bid.

"Given the already typical psychological premium of (about) 30%, we think there is a higher probability that Newcrest will wait and go hostile and give Lihir shareholders the option," Citi said.

Austock analyst Anastasia Kassianos said the offer looks attractive and she believes Lihir's board should have accepted.

"It is great for their shareholders to have the Newcrest paper as well as the cash--this is clearly something they shouldn't have said no to and the market is saying they should have taken it," she said.

However, Craig Campbell of Morgan Stanley says it isn't surprising that Lihir knocked back the offer.

"The first offer is probably never the best," he said.

Garnaut said Lihir was undervalued in the marketplace and the company is taking steps to rebuild market confidence and correct the valuation shortfall, including appointing its new chief executive.

Former chief executive Arthur Hood made a shock early exit from Lihir in January in the wake of investor anger over losses incurred in the acquisition of the Ballarat mine in Australia's Victoria state, a purchase Garnaut said Thursday was a "big mistake" that had damaged perceptions of the company.

Incoming chief executive Hunt, who headed the key iron ore, aluminum and uranium divisions of BHP in a 34-year career with the mining giant, said one of his focuses will be on better communicating the value of Lihir's assets and its growth potential to the market.

In a presentation, Newcrest said a combination with Lihir would create a significant gold company that would compare favourably to any of the major producers, with a market capitalization of A$24.5 billion, annual revenue of A$3.9 billion and production growth of 6% a year that would boost its annual output to 3.75 million ounces by 2014.

Newcrest's bid for Lihir adds momentum to a fresh wave of merger and acquisition activity in the Australian mining industry fueled by resurgent commodity prices, with Peabody Energy Corp. (BTU) on Wednesday making a A$3.3 billion bid for Macarthur Coal Ltd. (MCC.AU).

-By Alex Wilson, Dow Jones Newswires: 613-9292-2094; [e-mail]