2nd UPDATE: Lihir Gold 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) and Newmont Mining Corp. (NEM) were among those who could potentially lob rival bids for Lihir.

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.

Lihir said that, based on Newcrest's closing share price Wednesday, the offer valued its 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 surged 29% to A$3.92 at 0122 GMT Thursday after trading as high as A$4.02, while Newcrest shares were down 2.0% to A$32.16 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 confirmed the terms of the deal it had put to Lihir, which it described as a "proposal to combine the two companies", and said it planned to make a further statement later Thursday.

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

Citi analysts said Newcrest was more likely to wait for nine months and go hostile with its current offer than it was 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 looked attractive and she believed Lihir's board should have accepted it.

"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.

Garnaut said Lihir was undervalued in the marketplace and that 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" which had damaged perceptions of the company.

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

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; alex.wilson@dowjones.com

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