TORONTO - In an attempt by the young to outstrip the old, BARRICK GOLD (ABX-T, ABX-N) has made a hostile US$9.2-billion bid for long-time rival, and senior Canadian gold mining titan PLACER DOME (PDG-T) on Monday morning, Oct. 31.
While Placer Dome has corporate roots that reach all the way back to 1910, Barrick embodies the new spirit of gold mining, managing to become the world's third largest producer in just 23 years.
If Placer Dome shareholders accept the offer, the new company would be one of the world's largest gold miners with output of roughly 8.3 million oz annually and reserves of around 150 million oz.
Barrick offered US$20.50 a share in cash or 0.75 of a Barrick share plus 5 cents per share in cash. The offer is 24% above Placer Dome's US$16.50 closing price on Oct. 28 on the New York Stock Exchange. Barrick needs roughly 66% approval from Placer shareholders, who have 35 days from the mailing of the offer to accept or decline it.
In a conference call Monday morning, Greg Wilkins, Barrick's president and chief executive, said the merger would result in more than US$200 million in savings from transaction 'synergies'. More specifically, Wilkins cited reduced energy costs, lower inventory levels, consolidation of exploration targets, improved purchasing leverage and the elimination of some offices, as well as the sharing of shipping costs.
As part of the deal, GOLDCORP (G-T) has agreed to buy Placer Dome's Porcupine, Musselwhite and Campbell gold mines in Ontario, the La Coipa silver mine in Chile, and 40% of the Pueblo Viejo gold project in the Dominican Republic. The agreed-upon price for these assets is US$1.35 billionfunds that helped Barrick include a cash offer to Placer Dome shareholders.
During the conference call Wilkins said that, as part of the deal, Goldcorp cannot make any deals with other companies. That means Goldcorp cannot offer a 'White Knight' option to Placer Dome in the form of an alternative merging partner.
"We'd rather have Goldcorp as a partner," Wilkins said. "That requires a compromise once in a while."
As for the hostile nature of the takeover, Wilkins said Barrick had been in contact with Placer Dome's board in the past but "never had much traction from them." Wilkins said he spoke with Placer Dome's chairman this morning, Robert Franklin, to inform him of "what was coming."
Representatives from Placer Dome were not immediately available for comment.
In the question period at the end of the conference call, Wilkins said Barrick had learned to be more efficient with acquisitions since taking over HOMESTAKE MINING in 2001.
Wilkins said Barrick would strengthen regional offices in an effort to ensure a smooth and efficient transition.
"We have management teams in place to immediately move in and take over the management of (the new) assets," Wilkins said.
Wilkins added that Barrick would try to reduce Placer's hedge book after a formal review of the company's hedging contracts.
Barrick is the world's third largest gold producer, while Placer ranks fifth. Besides operating mines, the merged company would give Barrick nine development projects on four continents with exploration projects in 16 countries.
In Toronto on Monday, Barrick was down $2.12 to $29.72 on roughly 4.9 million shares. Placer Dome was up $3.60 to $ 23.10 on roughly 8.6 million shares. Goldcorp was up 43 cents to $22.86 on roughly 2.5 million shares.
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