Interesting Article about Newmont/Barrick acquistion ability:
Newmont Mining Bides Its Time on Acquisition Front
Bloomberg News March 2, 1999, 2:44 p.m. PT
Denver, March 2 (Bloomberg) -- Newmont Mining Corp., the world's second-largest gold producer, sat out a recent flurry of acquisitions by some of its rivals, and with reason.Newmont shares tumbled 64 percent in the past two years --more than competitors -- as gold prices plummeted. The drop has made it prohibitively expensive for the company to use stock as currency for acquisitions, and it doesn't have enough cash to pursue takeovers without adding to its $1.25 billion debt. Passing up acquisitions may not be a bad decision for
Newmont right now, given the market's negative reaction to high
premiums paid in recent purchases by Barrick Gold Corp. and
Placer Dome Inc., the fourth- and fifth-largest gold producers.
''The prices being paid are top dollar, which logic tells us
may be the time to stand aside,'' said David Christensen, gold
analyst at Merrill Lynch & Co. Inc. High-quality acquisition
targets are ''few and far between,'' he said.A 31 percent decline in gold prices during the past two years left many small- to medium-size gold companies without cash to develop promising new mines, and ripe for takeovers. While Newmont has done some window-shopping, its checkbook remains closed.At year-end, Newmont had $79.1 million in cash. In comparison, Barrick had $416 million in cash and virtually no
debt, while Placer Dome had $420 million in cash and $30 million
in debt. Much of Newmont's debt is linked to its Batu Hijau gold
and copper mine in Indonesia that begins operations later this
year.Newmont was hurt more than its Canada-based competitors,
which used contracts to lock in prices that often were above the
market price. Newmont bet that the price of gold would rise, and
so collected less money as gold fell. Exploration Budget Newmont also will spend about $60 million looking for gold this year, $10 million less than it did in 1998. About 75 percent of that will be spent in the U.S. and South America. Rather than outright acquisitions, Newmont is more likely to swap land to solidify its holdings and give it new ounces that help improve cash flow at existing mines, as it did with a recent series of transactions with Barrick, said Kevin Nyysola, portfolio manager at Investment Group Management Inc. The
Winnipeg, Manitoba-based mutual fund company's holdings included
3.4 million Newmont shares on Dec. 31.Denver-based Newmont could swap more Nevada land with Barrick or Placer Dome after it acquires Getchell Gold Corp.,which owns land adjacent to Newmont property. Kinross Gold Corp. also owns land near Newmont properties in Alaska. ''We're looking for projects that make sense,'' said Randy Eppler, Newmont vice president for business development and planning. That means deposits that profitably can add several hundred thousands ounces a year to annual production, which was 4.1 million ounces in 1998.While Newmont looks for land swaps, the largest North American producers, Barrick and Placer Dome, have been buying.Since November, Placer Dome agreed to pay US$235 million in cash for half of a project owned by South Africa's Western Area Ltd. It also outbid rivals including Newmont to buy Getchell for US$848.9 million in stock.Last month, Toronto-based Barrick failed in its C$160. 4million (US$107.5 million) tender offer for Argentina Gold Corp.A week later, it agreed to pay C$491.4 million in stock for Sutton Resources Ltd., whose 3.7 million-ounce deposit in Tanzania is ready to mine.Although Placer Dome and Barrick said the exploration potential justified a higher-than-market price for their acquisitions, shareholders haven't been impressed. Placer Dome shares dropped 22 percent since it agreed to pay what was at the time more than twice Getchell's share price, though the purchase won't add to profit or cash flow until 2003.Barrick shares dropped about 10 percent since its offer for
Sutton, which included an 80 percent premium, was announced and
the company said return on investment would be modest. South Africa's biggest gold players haven't been idle, either. In December, AngloGold Ltd. the world's biggest producer, agreed to buy Minorco SA's gold assets for US$550 million. Last week, Gold Fields Ltd., the No. 3 producer, agreed to take over Driefontein Consolidated Ltd. in a $1.5 billion transaction. None of the acquisitions approaches the US$2.1 billion Newmont paid for Santa Fe Pacific Gold Corp., just after gold prices peaked at about US$420 an ounce in February 1996.
Merging Santa Fe's operations with its own in northern Nevada forced Newmont to develop new mining plans, write down the value of some Santa Fe assets and eliminate 1,100 jobs. Since then, the combination has saved Newmont about $100 million a year.
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