“It’s easy to see why Barrick needs Placer Dome, but it’s difficult to understand why Placer Dome should want Barrick,” said Placer Dome president and chief executive Peter Tomsett during a recent conference call.
On the same call, Placer Dome’s chairman Robert Franklin joined Tomsett in laying out the three primary reasons for rejecting the offer:
– Barrick’s declining long-term production compared with Placer’s increasing production means Barrick isn’t giving adequate value to the company;
– the timing of the offer — when Barrick shares are high — and the use of those shares in the bid, was said to be opportunistic on Barrick’s part; and
– Placer shareholders would not be adequately compensated for the risk associated with owning Barrick stocks — Barrick’s large Pascua-Lama gold project on the Argentine and Chilean border was given as an example of such risk.
On Oct. 31, Barrick offered to buy Placer Dome for either $20.50 a share or 0.7518 of a Barrick share and 5 cash, for a total value of US$9.13 billion.
Since the offer was made, Placer shares have risen roughly 31% or $6.10, and opened the week of Nov. 28 trading at $25.59.
Barrick’s shares have returned to roughly their pre-deal announcement price of $31.90, after a taking an 8.5% or $2.52 hit, knocking them down to $29.32 a day after the deal was announced.
Tomsett used the sale of Canadian assets to Goldcorp to punch a hole in the idea that a sale to Barrick would keep the company attached to its Canadian roots.
“I find it ironic that Barrick is out there saying they want to create a Canadian powerhouse and then they turn around and want to sell all of the Canadian assets,” Tomsett said during the conference call. “It doesn’t quite ring true to me.”
With gold approaching US$500 per oz., Toronto-based Barrick — the world’s third largest gold producer — wants the 68% boost in reserves that the acquisition of Placer Dome would bring. If acquired, Barrick would become the world’s largest producer at 8.4 million oz. gold per year.
And while Newmont president Pierre Lassonde confirmed that Newmont was thinking about making a bid for Placer, Lassonde qualified the company’s interest in an interview with Reuters.
“Whether or not we are going to do something is far from evident when there is a good reason why (an offer) has never been done in the past three years,” he said.
That “good reason” is that Lassonde doesn’t see Placer’s assets as “totally complementary” to Newmont’s.
Mark Smith, an analyst with Toronto-based Dundee Securities, doesn’t think Newmont is the only major taking a look at Placer.
“I’d be quite surprised if every significant gold company were not involved in these discussions,” Smith says. “It’s just standard practice.”
While Smith describes Barrick’s bid as “sound,” he says there’s always room for a sweetener and that Placer’s management is “obligated to find a white knight.”
Smith says Placer Dome’s contention that Barrick’s production will be declining in the long term while its own will be increasing as of 2010 is “reasonable,” although such guidance does include some Placer projects that still have risk associated with them.
Smith doesn’t hold shares in Placer Dome.
Be the first to comment on "Barrick leaves bitter taste in Placer’s mouth"