Barrick buys into Cons Gold

Precocious American Barrick Resources, already a darling of North American gold stock investors and not yet three years old, has boldly grabbed a substantial stake in Consolidated Gold Fields.

Barrick says it acquired a 4.9% stake, worth about $115 million at current market values, in the huge multinational mining company before Nov 15, but rumors have circulated since at least Nov 26 that Barrick could be bidding for control.

Sources tell The Northern Miner that recent buying, representing as much as a 6% stake in Cons. Gold beyond Barrick’s holding, is unaccounted for.

That has Cons. Gold worried, so much so that it has asked the British government’s Department of Trade and Industry to investigate in order to determine where beneficial ownership of that missing block of stock resides.

A DTI investigation is by no means routine, and an investigation at the request of a company is even more unusual. It is an indication of how seriously Cons. Gold views the situation.

Barrick denies that United Siscoe Mines, which is in the process of buying a controlling block of Barrick shares, has purchased a stake in Cons. Gold. In fact, an information circular regarding the reorganization of Siscoe states that it will “not invest in the gold mining industry” other than its investment in Barrick.

At Barrick’s last annual meeting, Chairman Peter Munk had fervently told shareholders that Barrick would concentrate on achieving gold production outside of South Africa because of the climate of uncertainty surrounding that nation’s future and the resulting flow of capital to non-South African gold mining areas.

Ironically, Cons. Gold is a major player in South African mining through 48%-owned Gold Fields of South Africa which accounts for more than one-fifth of South African gold production. A story in Mclean’s magazine says Mr Munk has $2 billion in backing from a London banking syndicate to proceed with a takeover of Cons. Gold.

Control of Cons. Gold currently rests with the Oppenheimer family which owns 27.8% through Bermuda-based Minerals and Resources Corp.

John Heathcote, who leads the mining team at Morgan Grenfell Securities International in London, says his firm believes it is “highly unlikely” that Barrick could take over Cons. Gold. Mr Heathcote says Barrick has neither the financial resources, the management nor the ability to take over Cons. Gold.

He says projected earnings for Cons. Gold would be insufficient to pay the interest charges incurred if funds for a takeover were borrowed.

Barrick seems to have access to substantial financial backing but remains secretive about the source of funds for buying the 4.9% stake in Cons. Gold. At the end of September it had about $43 million in cash and in October issued a gold bond to raise about $69 million.

If the object is to break up Cons. Gold to realize a higher asset value than the market price currently reflects, the fees involved would probably be prohibitive for a company of Barrick’s size, about 3%-4% of Cons. Gold’s market capitalization or as much as $96 million.

Some of Cons. Gold’s assets have separate stock exchange listings and could easily be spun off, but many assets could not be stripped so easily. Cons. Gold is the parent company of an international group with interests in mining and construction materials. Gold Fields of South Africa is the second largest gold producer in the Western world, accounting for about 12% of world gold production. It also holds, among other things, a 49% interest in Australian mining company Renison Ltd. and 26% of U.S.-based Newmont Mining.

At least one fund manager based in Toronto, however, finds the concept of breaking up Cons. Gold entirely credible and says Barrick could well be the catalyst to that end.

He says Newmont Mining, which has spun off some of its copper holdings, is “the prize.” Newmont Gold, 95% owned by Newmont, is the second largest gold mining company in the U.S. and could soon overtake Homestake as the number one producer.