Monday June 25, 9:40 pm Eastern Time
Barrick Gold buys rival Homestake in $2.3 bln deal
(UPDATE: adds background on Pascua-Lama and Veladero projects)
By Scott Anderson
TORONTO, June 25 (Reuters) - Barrick Gold Corp. (Toronto:ABX.TO - news) (NYSE:ABX - news), a relative newcomer to the tight-knit world of gold miners, seized its biggest prize yet on Monday with a $2.3 billion all-share takeover of established rival Homestake Mining Co. (NYSE:HM - news)
The deal, expected to be finalized in the fourth quarter, will boost Barrick production by more than 2 million ounces a year to 6 million ounces. It catapults the Toronto-based company to become the world's second-largest gold produce behind South Africa's AngloGold Ltd. .
The new company is expected to have a market capitalization of about $9 billion -- twice that of its nearest rival.
``This is a remarkably exciting day in the history of both Homestake and Barrick,'' Barrick President and Chief Executive Randall Oliphant told a news conference.
``We have brought together the two lowest-cost major producers in the world. And we think that we have built a foundation which is going to lead to this company, not only today being the preeminent company in the world, but clearly going forward.''
Barrick, North America's second-largest gold producer and No. 4 worldwide, said it was offering 0.53 of a Barrick share for each of Homestake's 263.3 million outstanding shares, valuing each Homestake share at $8.71 and bringing the total cost of the deal to $2.3 billion.
Barrick shares eased C$1.25 to close at C$23.80 on the Toronto Stock Exchange on Monday. Homestake shares rose $1.40 to $8.05 in New York.
The firms said their boards had approved the merger, and key shareholders of Walnut Creek, Calif.-based Homestake have already agreed to tender their 12 percent of the company.
The new firm, with cash gold production costs of some $156 an ounce, will also have about $900 million cash on hand.
NEW KID ON THE MINING BLOCK
Barrick has grown from one mine in 1983 to a worldwide powerhouse with operations in Canada, the United States, Peru and Tanzania. Homestake, formed 125 years ago, is active in Canada, the United States, Chile and especially Australia, where it does about 40 percent of its business.
Oliphant told Reuters the deal could dilute earnings in 2001 and boost them slightly in 2002. He said Barrick might have to take a ``modest'' one-time charge to reflect the costs of consolidation, but declined to give further details.
Barrick said the new company would have a combined gold forward-sale position of 18 million ounces, at an average price of $345 an ounce. Gold, which has had a 52-week range of $252.80 and $326.25 an ounce, traded in London on Monday at $272.90.
Hedging, a common practice among larger gold producers, allows a company to cushion the effect of falling gold prices by selling future production at a fixed price.
Oliphant said he expected the deal to bring annual cost savings of about $55 million from 2002, mostly in the areas of taxation, exploration and administration. Although no job losses are expected at the mines, Oliphant said some jobs could be cut in administration and exploration, where there is obvious overlap.
``It's a jumbo deal,'' said John Ing, president of Maison Placements Canada. ``Just when everybody had given up on consolidation, they buy the franchise.''
DEEPER POCKETS
``It gives these guys bigger and deeper pockets and they are pretty aligned in terms of production costs,'' said John Meyer, mining analyst at SG Securities in London.
``Both of them are cheaper (producers) than AngloGold, South Africa's biggest, and combined they would be slightly cheaper than Australia's biggest, Normandy Mining (Australia:NDY.AX - news).''
Barrick said the deal also greatly enhances the possibility of it moving forward on the stalled $1.2-billion Pascua-Lama gold and silver project on the Chile-Argentina border, adjacent to the Veladero property the two companies jointly own.
Barrick delayed construction on the Pascua-Lama project late last year, blaming the slumping gold price and promising to make a decision when the deal became more economically viable.
Oliphant told Reuters in an interview that the company will now reconsider the Pascua-Lama project with the cost savings the two companies will realize on the Veladero property which shares the same orebody as Pascua-Lama.
Analysts were divided on whether this deal would open the door to further acquisitions. Some said Barrick, which has grown rapidly through acquisition, and other big firms could continue to pick away at smaller, less profitable gold companies.
``This deal puts pressure on everyone to keep pace,'' said Barry Allan, analyst at Research Capital in Toronto. ``The ripple will be felt here and across the pond.''
John Tumazos, an analyst at Sanford Bernstein in New York, however, said the deal would have little impact on other players in the sector as Homestake is only about a quarter the size of Barrick.
``This is Homestake and Barrick's business and it has nothing to do with companies like Newmont Mining Corp. (NYSE:NEM - news) or Anglo-American,'' he said.
(Additional reporting by Rex Merrifield in London and David Howard Sinkman in New York)
($1 equals $1.52 Canadian)
biz.yahoo.com |
