Pickens’ Homestake offer not serious, analyst says

Having whetted his appetite for gold during unsuccessful bid for control of Newmont Mining Co., Texas oilman T. Boone Pickens is back in the hunt for another major gold producer.

The target this time is Homestake Mining Co. and through his Amarillo Tex.-based holding company, Mesa Limited Partnership, Pickens has offered $1.9 billion(US) in cash to buy the San Francisco company.

As reported (N.M., Nov 30/87) Pickens signalled his intentions back on Nov 17 when he filed statements with the Securities and Exchange Commission in Washington, D.C. stating that through Mesa he had acquired a 4.8% stake in Homestake.

After selling some of that position (at an assumed loss) Pickens recently followed up with a $20-per- share bid for Homestake’s 93 million outstanding shares. The offer was announced in a letter to Chairman Harry Conger.

But even though the offer is said to represent a significant premium to recent market prices ($18 on the New York Stock Exchange recently) a New York analyst says it shouldn’t be discounted. “It will take a much higher bid before either the market or Homestake begin to take Pickens seriously,” said Merrill Lynch of New York mining analyst Daniel Roling.

“With what we know of T. Boone, there isn’t a high probability that he can succeed with this offer,” said Roling. “He doesn’t have the financial resources and Homestake has significant defensive mechanisms which it can use to thwart a takeover bid,” he said.

Soon to be overtaken by New York-based Newmont Gold as the largest gold producer in the U.S., Homestake operates two of America’s largest gold mines — the 110- year-old Homestake mine in South Dakota and the McLaughlin mine in northern California. Together they produced over 515,000 oz gold in 1986.

Homestake also has a 25% interest in the Round Mountain mine in Nevada which produced 42,000 oz gold in 1986. Other Homestake assets include a 48% stake in two small Australian gold producers — the Mt. Charlotte and Fimiston mines and some oil and gas properties.

Picken’s-controlled Mesa already holds 400,000 Homestake shares directly. It also has a 45% interest in a partnership that owns about 3.1 million Homestake shares.

Mesa has entered an agreement to buy the outstanding 55% of the partnership which would leave Mesa with a 3.8% in Homestake.

The Homestake takeover bid, is the oilman’s second run at a major gold producer in just six months. In September, Pickens-led Ivanhoe Partners made a $95(US)-per share offer for a 51% interest in Newmont.

However, a second bid was eventually defeated by a Supreme Court ruling which blocked the attempted buyout. Following the pummelling it took during the Pickens bid, Newmont has released a new 5-year plan designed to increase its gold production from 589,000 oz last year to 1.6 million oz by 1991.