Celtic Resources rejects 161 mln stg Severstal bid

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LONDON, Sept 28 (Reuters) London-listed gold miner Celtic Resources has rejected an improved 161 million pound (7 million) offer from Russian miner and steelmaker Severstal, saying the 23 percent increase was still not enough.

However, Severstal strengthened its hand by buying a further 3.1 percent stake in Celtic, taking its holding to 29.7 percent, and said it had also won the backing of Canada's Barrick Gold, which owns 6.6 percent of Kazakhstan-focused Celtic.

''This offer significantly undervalues the company and should be rejected by shareholders,'' Celtic said in a statement shortly after Severstal announced its 270-pence-a-share cash offer.

Earlier this week, Celtic rejected a 220-pence-a-share bid proposal from Severstal and said it had received a separate approach from an unnamed third party.

Severstal said its offer was consistent with its aim to diversify into non-ferrous mining in the Commonwealth of Independent States (CIS).

It said the bid was 43.6 percent above the volume weighted average share price of Celtic for the three months to Sept. 17, the day before Celtic said it had received a bid approach.

Celtic shares leapt as much as 20 percent to 278 pence, signalling some investors are hopeful of a higher offer.

At 1130 GMT, Severstal shares were up 2 percent at 528.3 roubles.

An industry source told Reuters on Thursday that the second approach to Celtic was from a Western oil company.

Traders and analysts said Victoria Oil&Gas was a possible bidder, as Victoria's Chairman, Kevin Foo, is also managing director of Celtic Resources.

Both Celtic and Victoria Oil&Gas declined to comment.

Celtic Resources, incorporated in Ireland, operates two gold mines in Kazakhstan. It also has a 50 percent stake in a Kazakh molybdenum mine and a copper and gold project in Russia.

REUTERS DKS HS1717

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