SOURCE: Allied Gold Mining PLC

July 18, 2012 04:47 ET

St. Barbara Interview re ALD Acquisition

QUEENSLAND, AUSTRALIA--(Marketwire - Jul 18, 2012) -

Offer to acquire Allied Gold:

Open Briefing Interview

Attached is the transcript of an interview today with Tim
Lehany, MD and CEO, by Peter Taylor, Analyst, Orient
Capital Pty Ltd, regarding the Company's offer to acquire
Allied Gold Mining Plc.

MD and CEO on Allied Gold acquisition and Outlook

Open Briefing interview with MD and CEO Tim Lehany

                                                St Barbara Limited
Level 10
                                                432 St Kilda Road
                                                VIC 3004

St Barbara Limited (ASX: SBM) is an ASX listed gold production company
with flagship mines Gwalia, King of the Hills and Marvel Loch
contributing to annual production of 339,000 oz gold in the 2012 fiscal
year. St Barbara has entered into a Scheme Of Arrangement to acquire
the ASX, LSE and TSX listed Allied Gold Plc (ASX: ALD TSX: ALD LSE:

 Market capitalisation: $430 million

In this Open Briefing®, MD and CEO Tim Lehany discusses:

* Rationale for offer to acquire Allied Gold

* Comment on premium offered

* Deal strategy and outlook

* Detailed plans to realise value

Record of interview:

St Barbara Limited (ASX: SBM) is proposing to enter into a Scheme of
Arrangement with Allied Gold to acquire all the issued shares in Allied
Gold in exchange for A$1.025 cash plus 0.8 St Barbara shares for each
Allied Gold share, equivalent to a total of A$2.72 (as at 28 June 2012)
per Allied Gold share. What is the strategy behind this acquisition?

MD and CEO Tim Lehany

Our declared and consistent strategy for the last three years has been
to grow long term earnings per share. We do this through developing
our own assets, exploration success and the acquisition of geologically
prospective assets with a long reserve life and potential for strong
cash generation margins.

For the last two years, we have conducted a disciplined and objective
evaluation of advanced gold exploration projects, gold projects in
development and gold producing assets in Australasia and South East

Allied Gold has consistently rated as one of the best value targets in
the region for the relatively low cost of acquiring long term gold
operations in a highly geologically attractive yet under explored

We made this offer for Allied Gold following detailed due diligence of
the Allied Gold business, including a detailed review of base data,
rebuilding our own mineral resources models from available information
and two detailed site visits, involving experienced industry
consultants, senior technical staff and senior executives. Full
details of the St Barbara offer are set out on our website.

We view the offer value as strongly value accretive per St Barbara
share based on our internal models, including being NAV accretive
immediately, EPS accretive within the first full year after acquisition
and generating a double digit internal rate of return (IRR). Moreover,
Allied Gold has two producing gold assets backed by long life reserves,
each with near mine and regional exploration potential in the richly
endowed Pacific Rim.

We see the two businesses as being entirely complementary, with St
Barbara's strong cash flow generation and proven operating capability
supporting Allied Gold's exciting growth and expansion potential.
Since joining St Barbara I have paid particular attention to developing
disciplined systems across all functions within the Company, and I
believe we are now well advanced to deploy this capability across more
operations. The effectiveness of St Barbara's business systems and
operating capability has been demonstrated with our improved production
history and reduced operating costs at Gwalia. This will support
improved production reliability and cash operating costs reductions for
the Allied Gold operations.

Based on the extensive due diligence undertaken, we remain confident
that, together with Allied Gold's relatively new site management teams,
we can significantly reduce Allied Gold's cash operating costs, through
improving operating reliability, completing a number of productivity
improvement and cost saving initiatives already underway, and
undertaking newly identified improvement projects.

There are shareholders with large holdings in both Allied and St
Barbara. Some commentators have asserted that the Allied deal has been
driven by these large holders, for their benefit. What is your

MD and CEO Tim Lehany

I want to make it quite clear that at no time has any large St Barbara
shareholder come to us suggesting this transaction. Quite the
opposite, the thinking behind the St Barbara/Allied combination
originated within St Barbara and stemmed from our fundamental
geological assessment of the assets and their potential.

St Barbara shares are now trading at a discount of 36% to the closing
price of $2.12 prior to the announcement of the Scheme. Are you
chasing scale at the expense of shareholder value and what are you
doing to address the fall in the share price?

MD and CEO Tim Lehany

This transaction is definitely not about scale for scale's sake. It is
about creating long term value through building a stronger and more
profitable company.

Since the announcement, it has become clear that the investment
community, particularly in Australia, is not familiar with the Allied
Gold assets. In fact none of the twelve analysts that cover St Barbara
cover Allied Gold. We have therefore intensified our program of
investor engagement and information regarding the detail of the Allied
Gold assets, and the fundamental value that we see in a combination
with Allied Gold.

The fact remains that the Allied acquisition is fundamentally a
transformational opportunity for St Barbara. We believe our
shareholders stand to benefit from ownership of a more diversified
business, with a broader portfolio of long-life assets, significantly
increased production, reserves and resources, and enhanced exploration

The transaction is expected to be immediately accretive to net asset
value per share, and EPS accretive for St Barbara shareholders from the
first full year after completion (before any fair value, other
accounting adjustments or one-off integration costs). It will also
leave us with gross gearing of less than 20%.

We also believe there is potential for a re-rating of St Barbara stock
on a pre-announcement basis to reflect the quality of the combined
group's portfolio relative to peers.

In relation to the fall in the share price, I note in passing the
significant extent of indicated short selling of St Barbara shares
since the announcement of the offer.

Investors seem to think that a 90% premium for Allied Gold is
excessive. What is the basis of your valuation of Allied Gold and can
you amend the terms of the agreement to compensate for the implied
change in deal metrics as a result of St Barbara's share price fall?

MD and CEO Tim Lehany

The offer to acquire Allied Gold was very carefully considered by the
St Barbara Board after detailed due diligence and consideration of the
benefits available to all St Barbara's shareholders.

With regard to the premium I would first make some observations.
Allied Gold's share price, like the share prices of a number of listed
gold equities, has been under pressure in recent months. Allied Gold
was trading at over $3.00 a year ago, compared with $1.44 the day
before the transaction was announced. When the in-principle agreement
with Allied Gold was reached, the implied premium was approximately
52%, calculated on a 30 day VWAP basis. Over the following few weeks,
whilst finance facilities were finalised, the Allied share price fell
further relative to the St Barbara share price, resulting in a 74%
premium calculated on a 30 day VWAP basis, and a 92% premium to spot
price on the day of the announcement.

The Allied share price in my view continued to fall prior to the St
Barbara offer partly due to repeated negative operational issues and
resultant underperformance of the assets against market expectations.
The key point I need to emphasise is that the fundamental value of the
Allied Gold assets remains unchanged. The basis of our valuation of
Allied Gold was a rigorous, risk adjusted NPV model built on validated
due diligence information.

In light of St Barbara's failed bid to acquire Catalpa Resources last
year, how exhaustive was your search for a suitable growth target for
acquisition? Are you paying such a high premium for Allied Gold
because your organic growth prospects are limited?

MD and CEO Tim Lehany

Catalpa is actually a good example of our disciplined approach. We did
not proceed with that transaction because we did not see appropriate
value beyond what we had offered to Catalpa - which was rejected. We
did not chase after them as we had our price and that was that. This
was the same approach we took here. In addition, in Catalpa's case, we
were not allowed access to undertake due diligence, and we were
therefore not able to adequately verify the value of the assets we
sought to acquire, nor to properly investigate the risk profile of the
Edna May asset. In contrast, we had access to an extensive Allied Gold
data room and our people made a number of visits and spent considerable
time on the ground at Allied Gold's operating sites.

Our decision to make an offer for Allied Gold reflects our view that
this is an excellent opportunity for our business and our
shareholders. We evaluate every opportunity on its merits and the
strategic fit with Allied Gold is compelling.

In addition to our operating and management capability, St Barbara has
its own strong pipeline of organic growth and exploration projects. The
addition of Allied Gold's attractive brownfield and greenfield
expansion and exploration opportunities on the highly prospective South
West Pacific Rim is likely to result in a larger pipeline of potential
growth projects for the merged business, with a development profile
spanning exploration to gold production.

This value-add opportunity is a key driver for this transaction.

The Allied Gold share price had declined 68% to $1.43, from its March
2011 high, before the scheme announcement, due to the poor outlook for
its high cost operations and what appear to be low grade reserves. How
confident are you of reaching Allied Gold's targeted cash costs of
US$850/oz by year end, down from US$1,099/oz in the March quarter and
how will this be achieved?

MD and CEO Tim Lehany

Our detailed review of the Mineral Resource Estimates has established
the geological robustness of the long life deposits being mined by
Allied Gold at both Simberi Island in offshore PNG and Gold Ridge in
the Solomon Islands.

We also consider that the operational issues being experienced by
Allied are short term issues not atypical of companies shifting from
exploration, to development and to production. As a significant
proportion of the Allied Gold operating costs are fixed in nature. We
expect the achievement of reliable mining rates and plant throughput to
significantly lower the cost profile.

Allied has invested in significant capital infrastructure at both
Simberi and Gold Ridge that we believe is yet to realise its full

At Simberi an upgrade of its oxide processing facility is in progress
to take throughput from 2.0Mtpa to a design capacity of 3.5Mtpa.
Allied expect the expanded plant to be commissioned at the end of the
2012 calendar year, with production to increase to around 95,000 ounces
per annum. Achieving reliable production at this expanded rate should
deliver a significant reduction to unit costs. In addition, Allied has
invested capital in installing Wartsila generator sets for the
conversion of power generation from diesel to Heavy Fuel Oil, with
commissioning expected in late August 2012. The installation of the
generators will lead to a significant power cost saving, estimated by
Allied Gold to be approximately US$30-50/oz when fully operational.

At Gold Ridge, Allied Gold invested significant capital in the
refurbishment of the processing facility in 2010 and 2011. Based on
our due diligence the processing plant is in reasonable condition and
does not require significant capital expenditure to achieve consistent
reliable production.

Specific measures that Allied Gold already has in progress to improve
production and reduce cash operating costs, and which were discussed
during our due diligence, include:

* Re-assessing the resource adjacent to existing open pits through
well defined drilling programmes to improve mine planning;

* Increase in grade control activities in conjunction with
resource development drilling to assist better mine planning;

* Implement improved mine planning to better schedule production
resulting in better efficiencies and blending capability - enhancing
the feed to the processing facility;

* Improve the utilisation of the mining fleet through developing
better haul roads;

* Continue to reduce site support and administration costs,
particularly in the areas of shipping and transport, general
administration and corporate overheads.

At Gold Ridge, there is also opportunity to:

* Increase the mill recovery through optimisation of the mill
blend, particularly with the commissioning of the Kupers pit;

* Modify the front end feed arrangements to the processing
facility to enable a more consistent feed to the facility - leading to
better throughput rates and recovery;

* Consider a number of initiatives to reduce power costs through
optimising power usage in the processing plant.

Based on our detailed assessment through due diligence we believe these
and other pathways will reduce the Allied cash operating costs to at
least the stated guidance level of the rate of US$850 per ounce.

I am confident that St Barbara's strong operating and technical support
capability in resource modelling, mine planning and execution will
facilitate cost reduction at both Simberi and Gold Ridge.

Our strong cash position and cash generation capability will also
enable modest capital investment in the Allied Gold operations of up to
$40 million over two years to underpin productivity improvement and
production reliability. Examples of the types of capital investment
identified during our due diligence are:

* Developing better haul road surfaces to withstand high rainfall

* Improvements to the open pit mining fleet

* Modifications to the front end feed arrangements to the
processing facilities

* Investment in grade control drilling programmes and equipment

* Installation of a reverse osmosis facility at Simberi

Allied Gold's mines are open pit operations, but St Barbara's expertise
is in underground mining. What skills and experience does St Barbara
bring to the merger that will extract value in the Allied Gold mines?

MD and CEO Tim Lehany

In fact, the St Barbara management team has significant experience in
developing and operating both open pit and underground mining
operations. We see significant upside potential from applying our
strong operating capabilities and discipline, mine-planning
methodology, operating systems, procurement and cost management
frameworks to Allied Gold's assets.

Many of the improvement opportunities that I have mentioned have
already been identified by the Allied Gold site teams, and we look
forward to the opportunity to work with them to execute business
improvement programs. What St Barbara will bring to these assets is
additional technical support to drive the improvement programs, and
capital investment to underpin a number of the productivity and cost
reduction initiatives.

St Barbara has indicated that the combination of its strong existing
cash flow and the potential development of Allied Gold's exploration
assets is a key driver of the deal. What are the key exploration
opportunities in the shorter term and what level of investment is
expected in relation to these activities?

MD and CEO Tim Lehany

I should first point out that the exploration potential within the
Allied Gold tenements is in our opinion very exciting but is not
included in our valuation model at this time. We regard this potential
as a significant opportunity for our shareholders.

We have identified a number of near mine extensional targets at both
Gold Ridge and Simberi.

In addition, Allied Gold has an exciting and extensive exploration
portfolio situated on the richly endowed South West Pacific Rim,
including the west part of Simberi Island and the nearby Tabar-Tatau
Islands. We expect to commence an exploration program at an early date
close to the current operations to extend the known deposits, and also
across the relatively unexplored parts of the portfolio.

Acquiring a business with exposure to Papua New Guinea (PNG) and the
Solomon Islands appears to bring considerable sovereign risk to St
Barbara's business. How will you manage that risk, and what does St
Barbara know about operating in the Pacific region?

MD and CEO Tim Lehany

Through due diligence we have conducted a thorough risk assessment of
operating in PNG and the Solomon Islands, including an extensive
on-the-ground assessment of Allied Gold's mining operations at Simberi
and Gold Ridge. This informed our decision to progress with this
transaction. Based on our work during due diligence and subsequently,
we believe that St Barbara will be able to operate successfully for a
long time in PNG and the Solomon Islands.

As a combined management team with Allied Gold personnel, we have
considerable operational management expertise in the South West
Pacific. We have already engaged closely with the relevant authorities
in both territories following the announcement of the transaction and
the response has been positive. I was in PNG and the Solomon Islands
with some St Barbara managers during the week following the
announcement of the offer and met with a number of dignitaries and
government authorities in Port Moresby and Honiara.

Both governments welcomed the prospect of St Barbara's involvement
because they are supportive of responsible mining activities, which
provide valuable employment for local communities as well as taxation
and royalty revenues.

In the Solomon Islands, the Regional Assistance Mission to the Solomon
Islands has confirmed a long term commitment to support the training
and development of the Royal Solomon Islands Police Force. We are
advised that Gold Ridge represents approximately 20% of the local GDP
and we look forward to the opportunity of a long term relationship with
local landowner communities and government in that country.

Simberi Island has a long history of being supportive of mining
activities, with an estimated 80% of the local workforce engaged
directly or indirectly with Allied Gold's Simberi operations.

We do not take local support for granted, and we will work hard to
continue good relations with local landholders and other stakeholders.
In developing our valuation model for Allied Gold, we factored in
appropriate costs for working in these two environments.

Why aren't St Barbara shareholders required to vote on the transaction,
and how were you able to say in your announcements that you had already
secured support from 54% of Allied Gold shareholders?

MD and CEO Tim Lehany

The proposed combination has been structured as a friendly transaction
and is being implemented by way of a Scheme of Arrangement. The Scheme
of Arrangement is between Allied Gold and its shareholders. This is
why only Allied Gold shareholders are required to vote.

St Barbara was able to secure the support of 53.5% of Allied Gold
shareholders by the time of the announcement, as the UK takeovers law
permits a small window of opportunity 48 hours immediately before
release of the official announcement for a bidder to seek support from
target shareholders.

St Barbara has been profitable and cash generative, with 1H12 producing
NPAT of $46.5 million and the cash position increasing from $79 million
as at 30 June 2011 to $185 million as at 30 June 2012. Will this
transaction affect the prospect of you paying a dividend in the future?

MD and CEO Tim Lehany

We have a proven track record in translating reserves into operating
cash flows and profits, thereby enhancing EPS.

The Board regularly reviews the Company's capital management plans and
the consideration of dividend payments forms an important part of that
thinking, having regard to the requirements of the company's
development and funding profile going forward. Our first priority is to
invest cash flows in value accretive growth opportunities, and we see a
number of these in the Allied Gold business. Cash that is surplus to
capital requirements and investing in accretive opportunities will be
considered for potential returns to shareholders in an efficient

St Barbara will have a strong cash balance at the completion of the
combination and expects to generate significant free cash flows at
current gold prices. The Board will continue to regularly evaluate
capital management initiatives and more specifically the payment of

Thank you Tim.

For more information about St Barbara, visit  or
call Ross Kennedy, Company Secretary on +61 (3) 8660 1900

For previous Open Briefings by St Barbara, or to receive future Open
Briefings by email, visit

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