Editorial: Placer Doomed?

Just as an open wound bleeding into the ocean will attract sharks from miles around, so will weak, upper-level management in a mining company summon from around the world the kinds of sharks who wear Hugo Boss suits and Canali ties.

In late June, cash-rich Teck Cominco’s filing of a US$1-billion prospectus spurred fresh rumours of a major acquisition on the horizon for the savvy Vancouver-based miner.

It also shed new light on the long-standing vulnerability of Placer Dome to a hostile takeover, particularly after several years of unspectacular management at the top and inconsistent performance on the ground.

Operating out of its head office in Vancouver, Placer Dome has stakes in 17 mines in seven countries around the world, and employs 13,000 globally.

Placer Dome was born in 1987 from the merger of three venerable companies: Placer Development, Dome Mines and Campbell Red Lake Mines. Today, with a market cap of US$8 billion, it ranks as one of the world’s largest gold mining companies and is on track to produce 3.6 million ounces of gold plus 415 million pounds of copper this year.

But insiders will admit there has been some drift at the top since the retirement of president and CEO John Willson in 1999-2000. When the board was faced with replacing Willson, they had to choose between a money man and Willson’s eventual relacement, Jay Taylor, a technically competent man described by one former Placer Dome exec as having a “mine manager’s mentality” in that he ruled like a king of a small fiefdom.

Taylor retired in March 2004 and was replaced in September by engineer and long-time Placer employee Peter Tomsett. With less than a year under his belt as president and CEO, Tomsett has yet to really make a mark.

Within the story of Placer Dome becoming a fairly robust gold-mining company there lies a disturbing number of tactical blunders by management: giving up too early on the Bulyanhulu gold project in Tanzania, now a pillar of the Barrick Gold empire; the high-priced acquisition of the difficult Getchell gold mine in Nevada; the bad publicity surrounding past operations at the Marcopper mine in the Philippines; the negative sentiment toward the company’s gold hedge book (as good as it was), which weighed on the share price; the failure to recognize the greatness of Goldcorp’s Red Lake mine and buy it early on; and the expensive and ill-advised foray into the South Deeps gold mine project in South Africa, where laying off workers at inefficient operations is trickier than one might expect.

Today, despite all the activity at its 17 mines around the world, Placer Dome has few truly stellar assets: the large, low-cost Zaldivar copper mine in northern Chile; the Cortez mine and the superb exploration ground that surrounds it in Nevada; and perhaps the aging Campbell mine in Ontario’s Red Lake camp.

Placer Dome’s project pipeline is even more problematic. Again, apart from the exceptional Cortez Hills discovery, the remaining gold projects on the drawing board are huge, high-cost and in need of high metal prices: the refractory Pueblo Viejo gold deposit in the Dominican Republic; the Cerro Casale gold-copper porphyry in Chile (which was deemed uneconomic as recently as 2000); and the remote, refractory Donlin Creek gold deposit in Alaska.

With such a mixed bag of assets, would an acquirer of Placer Dome keep them all, or sell some either to streamline operations or to pay for the deal?

For that matter, with Placer Dome’s management and operations taking on more of an Aussie orientation in recent years, there may already be an inclination within the company to sell off some Canadian assets and re-orient the company further toward the Australian-Pacific region.

And so Placer Dome remains a prime takeover target in the gold industry, especially with no single shareholder owning more than 10% of the stock, and the combined shareholdings of the company’s board and executive officers adding up to a grand total of 0.04%.

When you own so little stock and don’t have a compelling plan for the future, how hard are you willing to fight off a takeover?

One thing is certain: the sharks know the answer.