Our readers will know by now that BARRICK GOLD of Toronto has launched a hostile takeover bid for Vancouver-based PLACER DOME. If its offer succeeds, Barrick will become the world's largest gold miner.
Barrick's offer for Placer Dome is worth US$9.2 billion in cash and shares. To ensure the offer includes a significant cash portion, Barrick announced that it would sell off certain Placer Dome assets to GOLDCORP of Toronto. The deal with Goldcorp is worth US$1.35 billion.
Placer Dome is a solid and profitable producer. Its output reached 3.65 million oz of gold in 2004, and its projected output this year is another 3.6 million oz (not to mention 380 million lb of copper). It employs 13,000 people in 16 mines on five continents. It is sitting on an estimated 42 million oz of gold reserves in five undeveloped properties. On the other hand it is mired in a nasty lawsuit arising from a tailings dam failure in the Philippines and has recently ceded its interests in the Cerro Casale gold project in Chile.
Goldcorp is an aggressive gold miner that produced 1.14 million oz in 2004 and is looking at 1.18 million oz for 2005. The Barrick deal would bring Placer Dome's Campbell gold mine to Goldcorp, nearly doubling that company's projected 2006 production to over 2 million oz. The Campbell mine is located adjacent to Goldcorp's flagship Red Lake gold mine in northwest Ontario.
Barrick, already the world's third largest gold producer at 4.96 million oz in 2004 and a projected 5.5 million oz in 2005, has 14 mines in the Americas, Africa and Australia. It also has projects under development in Nevada, Australia and on the border of Chile and Argentina. It has proven and probable reserves containing over 89 million oz of gold plus resources containing another 20 million oz. Why not go for the No.1 spot?
Hostile takeovers don't always succeed. Remember all the offers and counter-offers involving Xstrata and Falconbridge; Harmony Gold and Gold Fields; Wheaton River, IamGold, Coeur d'Alene Mines, Golden Star and Glamis Gold; China Minmetals and Noranda. The list goes on. Such moves are just part of the trend toward consolidation that has been going on in the mining industry since 2000.
Barrick announced its intentions and the arrangement with Goldcorp on Oct. 31. The board of Placer Dome issued a press release saying "no comment" the same day. The story is far from over. We predict a long, drawn-out endeavour complete with counter-offers, white knights and corporate posturing. The eventual outcome is less easily predicted.
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