North American gold miners pay premium for
takeovers
05:09 p.m Mar 10, 1999 Eastern
By Paul Simao
TORONTO (Reuters) - The stiff premiums North America's
largest gold producers are paying to push through takeover deals
have left analysts shaking their heads in amazement and investors
flashing the sell sign.
A wave of consolidation has swept through the gold sector as the
price of bullion continues to stagnate, profits plummet and small
gold mining firms teeter on the edge of bankruptcy.
Gold traded at $292.70 an ounce Wednesday, down from a 1998
high of $314.70 an ounce.
In the past four months, Canada's two biggest gold producers,
Barrick Gold Corp. and Placer Dome Inc. , have paid almost $1.7
billion for part or total control of gold mines in the United States,
South Africa and Tanzania.
The shopping spree continued this week as U.S. gold giant
Homestake Mining Co. ponied up $200 million in a friendly
takeover of high-flying Canadian exploration firm Argentina Gold
Corp. and its prized Veladero gold project in northwestern
Argentina.
Although the deals could guarantee years of low-cost production
for the North American gold troika, markets have shown little
enthusiasm.
Share values have tumbled as worried analysts and investors have
tallied up the cost of the takeovers.
''Both Homestake and Barrick have paid the upper end of the
range for their property. In Placer's case, it was way above the
range,'' said John Ing, president of Maison Placements Canada
Inc. in Toronto.
''What is worrisome is that we see in acquisitions that they don't
always work out,'' Ing added.
Of the three, Placer Dome has been hardest hit by skittish
investors.
Placer shares have fallen from C$23.50 to C$18.85, or about 20
percent, on the Toronto Stock Exchange since November when
the Vancouver-based company announced it would spend $235
million for a 50-percent stake in South Deep, South Africa's
largest gold mine.
Placer followed up its African acquisition one month later with a
$1.1-billion takeover of Denver-based Getchell Gold Corp and its
two Nevada gold mines.
Barrick touched a five-month low of C$26.25 a share on the TSE
on February 25, just days after the Toronto-based company
announced its C$525-million takeover of Canadian miner Sutton
Resources Ltd. , which will give it control of Tanzania's
Bulyanhulu, East Africa's largest gold mine.
Barrick closed at C$28.75 a share Wednesday on the TSE.
Shares of San Francisco-based Homestake, which will complete
its acquisition of Argentina Gold by issuing 21 million shares, fell
$0.50 to $8.81 a share Monday on the New York Stock
Exchange following news of its acquisition.
Homestake shares rallied to $9.25 a share Wednesday.
Investors were clearly concerned Homestake's C$7.81-a-share
offer for Argentina Gold -- it represented a 63-percent premium
over the Vancouver-based company's previous closing price --
was too rich.
Argentina Gold, which resisted successfully a hostile
C$5.00-a-share hostile takeover bid by Barrick, indicated late last
year it was worth at least C$5.50 a share to any buyer.
''Why would they (Homestake) pay so much more when
(Argentina Gold) had talked about somebody having to hit
C$5.50,'' asked one concerned Homestake institutional investor.
Analysts noted, however, that Homestake and other senior
producers might be willing to pay a premium for takeover targets
because of an increasingly pressing need to replenish the millions
of ounces of gold they mine every year.
($1-$1.52 Canadian)
Copyright 1999 Reuters Limited. |
