Peter Hambro finalises Aricom offer

Finance

Russia's No. 2 gold producer Peter Hambro Mining plc moved on Friday to dispel concerns about its debt by making a US$534 mln all-share offer for Aricom and using funds from an equity raising to pay off some debt.

A takeover of cash-rich, iron ore producer Aricom, which was spun out from Hambro in 2003, will give the gold producer access to US$257 million in cash at Aricom. "Combining Peter Hambro Mining's near term gold production assets with Aricom's significant available cash resources and iron ore assets will create a mining industry leader in the Far East of Russia," said Rudolph Agnew, senior independent director of Peter Hambro.

"The merger will create a mining industry leader in the Far East of Russia with operations in both gold and iron ore with a pro forma combined market capitalisation... of approximately US$1.15 billion."

Peter Hambro's offer of one of its shares for 16 Aricom shares valued Aricom at about US$534 million based on Thursday's closing prices, representing a premium of 19% from Aricom's closing price of 26 pence on Thursday.

Peter Hambro, which raised about £68 million (US$99.44 million) after expenses in a placing on Thursday, said Aricom directors had agreed to vote for the deal. The company issued 16 million new shares at a price of 450 pence a share, a 23 percent discount to Wednesday's closing price of 585 pence.

Peter Hambro also said it would use part of the proceeds to reduce debt by purchasing US$87 million of gold exchangeable bonds.

The firm had US$180 million worth of the bonds with an initial redemption date in October, which had worried some investors about the firm's exposure amid the credit crisis.

The takeover would bring Aricom, which began production last year, back to Hambro six years after it was listed separately. The chief executive of Aricom, Jay Hambro, is the son of Peter Hambro's executive chairman, Peter Hambro.

Last year, Aricom had been seeking US$1 billion to help finance new mines and a processing plant in Russia's far east that would produce up to 18Mt of iron ore annually, but the projects are now on hold during the global downturn.