Australia's top gold miner, Newcrest Mining , agreed a $8.5 billion takeover of Lihir Gold on Tuesday, signaling a hunger for foreign income among local miners after Canberra hit them with a new tax.

Newcrest clinched the deal with a higher offer for the Papua New Guinea-focused miner, creating the world's fourth-largest listed gold miner, just two days after Australia stung miners with a 40 percent tax on profits derived from domestic mines.

The new cash and share offer, Newcrest's third bid, values Lihir at A$3.88 a share based on Newcrest's latest trade, a small increase on the last offer that Lihir rejected last month.

Investors said Lihir shareholders should accept the offer, noting that three institutional investors -- BlackRock, Colonial First State and Fidelity -- are major shareholders in both companies. The trio accounts for 30 percent of Lihir's shares.

It's all good. The view is the merged entity will get swallowed up eventually anyway, said Don Williams, chief investment officer at Platypus Asset Management, which owns Lihir shares.

Lihir shares rose 4.1 percent to A$3.82, trading 2 percent below the value of Newcrest's offer, indicating investors expect Newcrest to be successful. Newcrest shares fell 4 percent to A$30.79.

Lihir's board said the merger made a lot of sense strategically and it was now happy with the price.

We are therefore pleased to have secured an improved financial proposal that we can recommend to our shareholders, Lihir Chairman Ross Garnaut said in a statement.

Lihir shareholders are to receive one Newcrest share for every 8.43 shares they own, plus A$0.225 cash a share, less any Lihir dividend declared or paid for the half-year ending June 30. It is flexible on the mix of cash and shares they can choose.

The combined organization will be Asia-Pacific's leading gold producer with a standout portfolio of long-life, high margin, tier-one gold assets, Newcrest Chairman Don Mercer said.

The move on Lihir makes more sense than ever for Newcrest as Lihir's main mine is in Papua New Guinea, which will not be touched by Australia's new tax.

Newcrest can now afford to pay a little bit more to acquire Lihir because Lihir represents foreign earnings and is therefore not vulnerable to the new Australian resource tax, said Grant Craighead, an analyst at Stock Resource.

Lihir would also give Newcrest a growth platform in West Africa, where Lihir has bought mines and acreage in Ivory Coast.

Top global gold miners Barrick Gold , Newmont Mining and AngloGold Ashanti are seen as potential spoilers of the deal, potentially going after Newcrest or Lihir.

But analysts say their chances of success are limited because they would be hard pressed to pay more than A$9 billion in cash, and Australian shareholders are unlikely to want foreign shares.

Williams at Platypus said the foreign shares hurdle could be overcome if a suitor opted for a dual-listing in Australia.

Lihir is being advised by Macquarie and Australian boutique firm Caliburn, and Newcrest is being advised by Lazard and Bank of American-Merrill Lynch .

(Editing by Mark Bendeich and Muralikumar Anantharaman)

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