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Barrick Initiates Sutton Takeover Bid: Was It Wise?
Both sides are calling the acquisition a "perfect fit," in Toronto-based Barrick Gold's [ABX] bid to take over
Vancouver-friendly Sutton Resources [TSE/VSE - STT; OTC BB - STTZF]. Speculators and short covering snapped up
Sutton shares on February 18th, driving the stock up 77%. But was this a good deal or should STT shareholders have held
out for a better deal, following Argentina Gold's [VSE - ARP] rejection of Barrick's offer earlier this month?
Sutton's Board of Directors unanimously agreed to recommend the offer to their shareholders and Sutton's president Michael
Kenyon observed that multiple fairness opinions favored the takeover. Institutional investors, sitting on 60% of STT shares,
and insiders controlling about 15% of the stock are probably enjoying a weekend of patting each other on the back; each
thinly traded Sutton share could soon be converted into a 0.463 share of industry leader Barrick Gold. The deal passes only
if 75% of STT shareholders approve the deal. And why shouldn't they?
A bird in the hand is worth two in the bush. Sutton had already invested C$65 million in their Bulyanhulu deposit, which is
allegedly East Africa's largest gold deposit. According to Sutton, production is scheduled for the year 2000, hopefully
producing gold at a rate of more than 300,000 ounces annually. On February 1st, STT announced a new gold zone that might
hold inferred resources of an additional 1 million ounces. That would bring the entire property to nearly 9 million ounces of
gold. Sutton's management and institutional backers obviously thought they had better things to do with their time and better
ways to spend Barrick's money than operate what might become an extremely profitable gold mine. The STT deposit could
generate gross operating profits of US$58 million annually, which explains why Barrick issued a pre-emptive bid.
Barrick is trying to exploit the new trend in senior gold stocks, snapping up juniors for a fraction of their full potential. One
won't know whether their failed attempt at buying out Argentina Gold was good or bad for the market until ARP comes out
with more drill results. Neither STT nor ARP was praying for the stupidity of ABX management to bail them out of their
troubles, as can often be the case in the junior gold markets. Both could, indeed, have world-class deposits. Judging from
Barrick's assessment of the gold "penny stock" markets, ARP was their first choice and Sutton the backup if they failed.
The premium Barrick is paying - nearly 90% above STT's February 16th closing price - indicates that the major didn't want
to hear "NO!" twice in the same month. A year from now, or sooner, we'll discover whether Sutton shareholders are kicking
themselves over their swift approval of the takeover bid or crying in their beer because they bailed out too soon. |
