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Gold/Mining/Energy : Takeover Targets in the mining sector
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To: russwinter who wrote (77)11/21/2000 10:53:46 AM
From: Claude Cormier   of 81
 
<A miner should be willing to pay a price that gives a good rate of return. Maybe to compensate for the risks of mining, that needs to be an IRR of at least 15%, or even 20%>

I agree. But the question is can they pay those large premiums over current market prices even if they still end up with a decent IRR. Keep in mind that such acquisitions must be financed through new borrowings. A 100% stock swap is not a viable alternative as the target companies want mostly cash.

And in the current risky environment where bankers are probably not too optinistic about the future of metal prices, I doubt the suitors can easily justify paying much more than the 2X-3X the market?

I guess those suitors with available cash can do what they want, no matter what the market says. But how many of them have enough cash.

<I would much rather swap my BAY or MFL shares one for one with MDG or one for three GLG, then watch BAY and MFL dilute themselves and risk the whole shooting match going it alone. >

I can understand your position. I would certainly take such a swap given the current uncertainty in the metals market. But I think you will agree that it is not necessarily the best thing that could happen to the shareholders of BAY and MFL. An immediate move in metal prices would give us much higher gains over the next 12 months.
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