Analysts not ecstatic on Dome/Placer merger

The merger of Placer Development, Dome Mines, and Campbell Red Lake Mines, has generated mixed reviews from Canadian mining analysts. Few are outright ecstatic about the plan but they tend to agree that Dome and Campbell have the most to gain from the amalgamation.

Steven Semeniuk, research manager for Odlum Brown in Vancouver argues that the “only synergy is from the financial point of view.” Noting that the bigger you are the higher you are valued, he predicts the merged company will take advantage of that fact by making a stock issue.

Describing the merger as a “paper shuffle,” he predicted the new company would be more attractive to institutional investors than to individuals. In the past, he feels Placer’s offshore interests were a source of excitement to smaller investors but concedes this will probably not be the case after the merger. Some of the risks associated with Placer’s offshore holdings (Australia, Papua New Guinea and Mexico) have been reduced however, he admits.

Geoff Carter, mines and minerals analyst at Pemberton Houston Willoughby Bell Gouinlock in Toronto believes that management has “entrenched themselves to some extent,” citing a possible takeover of Placer which has been rumored for months. (At Placer’s annual meeting recently John Walton, president, denied they had been approached but he didn’t rule out a takeover offer at a later date).

Mr Carter admits that the takeover scenario was a long shot given Placer’s share price and the fact the stock is widely held; but he cautioned that several institutional investors controlled a significant number of shares which might have made it easier. Noting that Placer has stated its intention to increase its exploration exposure in Canada, he said the merger accomplished that overnight.

What about Dome and Campbell? Mr Carter quipped that Dome’s $225 million debt guarantee to troubled Dome Petroleum would “look a lot smaller” in the merged company. He also said that Dome was difficult to analyze given its large shareholding in Falconbridge Ltd. which would be less of a problem in the amalgamated company. Campbell’s troubles at the Detour Lake mine would also be diluted somewhat and it would benefit from Placer’s formidable open pit mining skills and a talented group of operating people, he said.

“There aren’t going to be the massive changes that people think,” he predicted, adding that he expected an “improvement in the share price.”