Eldorado stock falls on China deal; fertilizer war likely to persist; Dragon Oil bid stalls

By Cristal Cody

Tupelo, Miss., Aug. 26 - Some investors backed away from Eldorado Gold Corp.'s stock on Wednesday after the Canadian company said it will buy the remaining shares of Sino Gold Mining Ltd., a leading gold mining group in China, an analyst told Prospect News.

In other situations, Terra Industries Inc. may have rejected the $3.83 billion revised stock offer from CF Industries Holdings, Inc., which faces its own takeover bid from rival Agrium Inc., but market observers are betting this isn't the end of it, an analyst said Wednesday in an interview.

Also on Wednesday, a market source said that financing or price negotiations are slowing down Emirates National Oil Co. LLC's plan to acquire Dragon Oil plc.

Meanwhile, stocks made early gains but stayed mostly flat by the end of the session.

The Dow Jones Industrial Average closed up 4.23 points, or 0.04%, at 9,543.52 on Wednesday.

The Standard & Poor's 500 index rose 0.12 of a point, or 0.01%, to 1,028.12, and the Nasdaq Composite index added 0.20 of a point, or 0.01%, to end at 2,024.43.

Eldorado Gold fever

Vancouver, B.C.-based Eldorado offered 0.55 of a share for each outstanding share of Sino Gold in a stock deal valued at C$2.00 billion on Wednesday.

The offer is worth about A$7.24 per Sino Gold share, a premium of 21.30%, based on the companies' closing share prices on Tuesday.

Eldorado's U.S.-listed shares fell 65 cents, or 5.90%, to close at $10.37 on Wednesday. Trading in Sino Gold shares was halted on Wednesday at A$5.97.

An analyst told Prospect News that investors pushed Eldorado's stock down in part because of the deal size and falling gold and metal prices on Wednesday but also because of the investment in China, which has surpassed South Africa as the world's largest gold producer.

Sydney, Australia-based Sino Gold operates the second-largest gold mine in China.

"The company will be more leveraged to China now, and a lot of investors that don't like the Chinese exposure are selling the stock," the analyst said.

Eldorado already owns a 19.80% stake in Sino Gold that it acquired in June from Goldfields Ltd.

The acquisition requires regulatory approval from the Australian Foreign Investment Review Board as well as approval from Sino Gold shareholders.

Sino Gold said it will seek a court order to set a special shareholders meeting in late November. The deal is expected to close in December.

Despite some investor concerns, the acquisition should ultimately close because it is structured as a friendly transaction, the analyst said.

"It's a good deal for them. The chances of it not going through are very small," the analyst said. "The labor cost in China is really low, and even the capital expenditures are lower. You can buy mining equipment for one-fifth to one-tenth of the cost here."

Fertilizer battle drags on

The three-way battle between Terra, CF Industries and Agrium has become the "never-ending story," Edlain Rodriguez, an analyst with Broadpoint Amtech, Inc., told Prospect News on Wednesday.

On Tuesday, Terra rejected CF Industries' revised offer from earlier this month of 0.465 of a share of CF Industries for each Terra share.

Terra said the bid is counter to the nitrogen producer's strategic objectives and delivers less value to shareholders than the company can on a stand-alone basis.

Sioux City, Iowa-based Terra had 2008 revenues of $2.90 billion.

"People assume that if CF really wants Terra, they're going to have to increase the bid," Rodriguez said. "And CF has made it pretty clear that they really, really want to get Terra."

Deerfield, Ill.-based fertilizer manufacturer CF Industries also faces a $4.30 billion cash-and-stock hostile takeover attempt by Agrium that the company has repeatedly rejected.

Agrium, a Calgary, Alta.-based agricultural company, extended its tender offer of $40.00 in cash and one Agrium share per CF Industries share to Sept. 22.

"It's just a continuation of what we've been seeing so far," Rodriguez said. "I don't think we've heard the last of those deals."

Shares of Terra gained $1.07, or 3.36%, to close Wednesday at $32.92. The stock has traded from $11.21 to $52.43 over the past year.

CF Industries' stock rose 52 cents, or 0.63%, to $82.71. Shares have traded from $37.71 to $153.97 in the past year.

Agrium shares slipped 13 cents, or 0.27%, to $48.33.

Dragon Oil bid up in air

Dubai government-owned Emirates National Oil said in June that it would consider a bid for the remaining 48.00% of shares of Dragon Oil that it does not own at a small premium to the company's closing stock price of 338p a share on June 3.

A rumored bid price of 400p a share for Dubai-based Dragon Oil looks to be on hold, a market observer said Wednesday.

"Discussions between Dragon Oil's independent committee and ENOC have been ongoing for almost two months now, and the news flow on the negotiation has been very thin," the source said. "On this basis, we would tend to assume that either financing or negotiation on price are delaying an announcement."

Dragon Oil has about $875 million in cash on hand that would allow the company to fund half of the acquisition costs, the source said.

Shares of Dragon Oil fell 2.75p, or 0.73%, to close at 375.00p.

Mentioned in this article:

Agrium Inc. NYSE: AGU

CF Industries Holdings, Inc. NYSE: CF

Dragon Oil plc London: DGO

Eldorado Gold Corp. NYSE Amex: EGO

Sino Gold Mining Ltd. Australia: SGX

Terra Industries Inc. NYSE: TRA

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