Rate Hike in Australia; Newcrest, Lihir Merger

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
04 May, 2010
New York City

Reserve Bank of Australia increased key lending rate by 25 basis points to 4.5%. Newcrest Mining revised its offer by 6.4% from the previous offer and 41% higher than the closing price at the time of first offer.

[R]3:00 AM New York, 7:00 PM Sydney – Reserve Bank of Australia increased key lending rate by 25 basis points to 4.5%. Newcrest Mining revised its offer by 6.4% from the previous offer and 41% higher than the closing price at the time of first offer.[/R]

The RBA increased the benchmark interest rate for the sixth time since October 2009 from 4.25% to 4.5%.

With this increase the borrowing costs have returned to average levels thus ending the stimulus put in place to help Australia avoid recession during the recent crisis, said the RBA spokesman.

The RBA is scheduled to publish its latest forecasts for inflation and economic growth on May 7.

Australian dollar weakened against all 16 of the most traded currencies after the RBA increased key interest rate for the sixth time.

Australian stocks fell on weak commodity stocks on lingering worries the proposed tax on resource companies supplying raw materials to the China, India, Korea and Japan.

Gold prices slipped 0.1% to $1,181 an ounce and crude oil prices decreased 0.3% to $86 per barrel.

Newcrest Mining Ltd has agreed to buy Papua New Guinea-based Lihir Gold Limited at A$9.5 billion after raising its bid value to A$4.03 per share based on yesterday’s share price, said the companies in a joint statement today.

The revised offer was 6.4% higher than the offer made by Newcrest last month. After the merger Newcrest will be the fifth largest producer of gold in the world. According to the merger agreement, Lihir may seek another buyer till June 8, said the company spokesperson.

In Sydney trading ASX 200 Index fell 1% or 48.4 to 4,737.10.

ASX 200 index in Australia decreased or 43.20 or 0.90% to 4,742.30 and of the stocks in S&P ASX 200 index stocks, 51 rose, 135 fell, and 14 were unchanged.

Hills Industries led gainers in the index shares with a rise of 3.7% followed by Lihir Gold advancing 3.3% after the company directors approved the A$9.5 billion takeover offer from Newcrest Mining.

The Australian dollar shed 0.2% to 92.40 U.S. cents.

Australia Raises Key Rates to 4.5%

Reserve Bank of Australia today elected to raise its key rate by 25 basis points to 4.5% effective tomorrow and now expects “rates for most borrowers will be around average levels.”

The bank noted that though inflation has been dropping from its peak in 2008 because of a rising exchange rate, slowing private sector labor costs and slower growth in demand, the extent of decline might not be as earlier projected.

Inflation is projected to be in the upper half of the target zone over the coming year.

According to the report, output growth this year will be more than earlier forecasted as the country’s terms of trade continue to strengthen, notwithstanding the fading effect of expansionary policies.

“The Board will continue to assess prospects for demand and inflation, and set monetary policy as needed to achieve an average inflation rate of 2% to 3% over time,” said the RBA.

Lihir Gold to Merge with Newcrest Mining

Newcrest Mining reported today that it has entered into a merger agreement through which it will acquire all of Lihir Gold Limited ordinary shares.

LGL shareholders will receive one Newcrest share for every 8.43 LGL shares they own, plus A$0.225 cash per share, less any interim dividend declared or paid by LGL for the half year ending June 30, 2010.

The offer at A$4.03 per LGL share using yesterday’s closing price values Lihir Gold at A$9.5 billion.

The final offer is 41% premium to LGL closing share price on February 12 when Newcrest made its initial offer.

LGL Chairman Ross Garnaut said “the LGL board had recognized from the outset the highly complementary nature of Newcrest and LGL, and the strong strategic logic in combining the two organizations.”

ASX Movers

Eastern Star Gas Limited led decliners in the S&P ASX 200 index with a loss of 14.4% followed by Atlas Iron Limited 10.2%, Sundance Resources Limited 9.3%, Avoca Resources Limited 7.6% and Infigen Energy 7.3%.

Lihir Gold Limited led gainers in the S&P ASX 200 index with a rise of 4.6% followed by Oil Search Limited 3.5%, Billabong International Limited 2.8% and CSL Limited 2.8%.

Other Movers

BHP Billiton plc the mining company fell 2.4% to A$38.56.

Billabong International Limited the publicly traded surfwear maker rose 2.8% to A$11.75.

Centennial Coal Company Limited rose 0.4% to A$4.11 after the producer of coal said a third coal export terminal has opened in Newcastle, the largest coal export port in the world.

James Hardie Industries SE the seller of home siding in the U.S added 2.1% to A$7.98.

Newcrest Mining Limited dropped 3.7% to A$30.85 after the gold miner agreed a A$9.5 billion takeover of Lihir Gold on Tuesday.

Rio Tinto Limited fell 4.0% to A$66.24.