Kinross, Echo Bay in gold merger talks
TVX plots its own course: 'It's hard to get three to tango'
Barry Critchley
Financial Post
Kinross Gold Corp. and Echo Bay Mines Ltd. are in talks to merge their operations, in a deal that would create the world's 10th biggest gold producer and is aimed at closing in on Vancouver-based Placer Dome Inc., sources said.
A merger would create a producer with a market capitalization of more than $930-million and production capacity of almost two million ounces a year.
Until recently, TVX Gold Inc. also was a party to the discussions. But it seems that the firm, which raised $75 million earlier this week via a bought deal, has decided to chart its own course.
One gold industry observer said yesterday that a merger of Kinross and Echo Bay is "a 50/50 chance," adding that it "makes a lot of sense." Echo Bay has mines in Nevada, Washington and Northwest Territories. Kinross has operations in North America and the Russian Far East. The source estimated that any deal is still at least a month away.
None of the parties involved were prepared to comment.
The discussions have resulted in at least one key conclusion: if a deal can be struck, Robert Buchan, chairman and chief executive of Kinross, will run the combined operation.
The decision by TVX to bow out of discussions should make a deal easier to achieve, said one source. "Mergers between two parties are tough at the best of times. Three way mergers are not a way to increase one's longevity," he said.
"It's hard to get three to tango," added another gold industry executive, noting that last month's deal between Newmont Mining Corp., Canada's Franco-Nevada Mining Corp. Ltd. and Australia's Normandy Mining Ltd. was the first of its kind.
Newmont became Echo Bay's largest shareholder yesterday, after agreeing to convert debt to equity, and it has made clear its intentions to divest of non-core assets and minority stakes.
Kinross also converted its Echo Bay debt into equity and is now its second largest shareholder, with an 11.4% stake.
If Echo Bay and Kinross can agree on a structure -- which would presumably be done via a share exchange between the two companies -- then the merged entity would produce about 1.75 million ounces of gold a year.
By contrast, Placer produces about 2.5 million ounces a year, though that production level is slated to decline to about 2 million ounces a year in three years.
"Kinross feels that it could move into Placer's league [with this transaction.] The investors would be more attracted to Kinross on a comparable basis," said one analyst.
While TVX Gold seems to have decided to go it alone, part of its assets may be involved in the transaction. In 1999 it entered into a joint venture with Australia's Normandy Mining. (The joint venture is TVX Normandy Americas.)
In that transaction, five precious metal mines in North America, including two in Canada, were put into the joint venture. Normandy owned 49.9% of the joint venture while TVX owned the rest.
Newmont has now acquired that stake and may decide to divest of it.
TVX has the right of first refusal on Newmont's stake but may decide not to exercise that right. However, some observers speculated that it has raised $75-million of firepower to allow it to take out the half of TVX Normandy Americas it does not already own.
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