Maybe Gold Fields was after VB?
Franco-Nevada's Gold Fields Merger a Bet That Gold to Rally
Bloomberg News
Jun 13 2000 4:47PM ET
Franco-Nevada's Gold Fields Merger a Bet That Gold to Rally
Toronto, June 13 (Bloomberg) -- No gold company gets more from its staff than Franco-Nevada Mining Corp., whose 44 employees support an enterprise with a $1.76 billion market value and profit last year of $66 million.
The company's two leaders are Seymour Schulich and Pierre Lassonde, who co-founded Franco-Nevada on the premise that investing in other people's mines was more lucrative than digging for gold themselves.
Franco-Nevada's agreement to merge with Gold Fields Ltd., the world's third-biggest gold producer with 54,000 staffers, changes that. It's a bet that gold prices will soar, which would push shares of mine operators higher than those of royalty companies such as Franco-Nevada. Schulich is wagering that bullion will climb to $400 an ounce in two or three years from $285.75 now.
``At that level, we make a lot more money for our shareholders (as mine operators) than we would make staying the way we are,'' Schulich said in an interview.
Schulich and Lassonde will remain as co-chairmen of the company that will result from the combination of Johannesburg- based Gold Fields and Toronto-based Franco-Nevada, and their job is to find takeover targets.
The pair have a knack for picking winning investments. One of their early bets was a $2 million investment in a Nevada property in 1986. A year later, Barrick Gold Corp. bought the property, called Goldstrike. It has become one of the world's richest mines, providing Franco-Nevada with a quarter of its revenue.
``You might say we're pleased they picked us as a winner,'' joked Ian Cockerill, chief operating officer of Gold Fields, in an interview.
$700 Mln to Spend
Along with the experience of Schulich and Lassonde, Franco- Nevada has $700 million to spend on acquisitions, and no debt.
``It puts us in a commanding position to become a leading participant in the inevitable consolidation in the business,'' Cockerill said. He said an Australian miner might be on the list of targets.
That's an area Franco-Nevada knows well. It has interests in the Henty gold mine in western Tasmania, operated by Gold Fields, and two other properties in the country.
``We certainly have an in-depth knowledge of North America and we've looked at most of the operations in Australia,'' Schulich said.
Over the 17 years since its creation, Franco Nevada has cobbled together royalty interests in gold mines and projects around the world. It also has interests in oil and gas and mines for metals other than gold, including the Voisey's Bay nickel project in Newfoundland, one of the world's biggest deposits.
Last year, Franco-Nevada merged with sister company Euro- Nevada Mining Corp. in an effort to create a bigger miner that would be more attractive to investors.
Since the merger Franco-Nevada shares have fallen 30 percent. Part of the drop came after the company predicted lower production and higher costs at its Ken Snyder gold mine in Nevada, the company's first foray into developing and operating a mine on its own.
Operations is where Gold Fields can help, Cockerill and analysts said.
``Gold Fields has excellent underground operating experience,'' said Catherine Gignac, an analyst with UBS Warburg in Toronto.
While Schulich admits that ``I don't think we can teach Gold Fields about mining,'' he may be able to teach the people there how to increase a stock price.
Even with the recent drops, since the beginning of 1992, Franco Nevada's stock price has almost tripled. In the same period, Gold Fields shares have fallen by a quarter.
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