Placer has agreed to grant shareholders of Getchell 2.45 shares of Placer for each of Getchell’s 31.5 million shares. The offer values Getchell at US$34.45 per share, a high price for a stock valued at US$16.19 before the announcement. Getchell’s share price peaked at more than US$50 amid positive analyst coverage in mid-1997 but has fallen below US$9 since the gold price dropped. Placer’s offer was based on the closing price on Dec. 11.
The deal was announced on Dec. 13, and on the following morning Getchell was trading at US$28 per share. In excess of 3.5 million shares were traded on the American Stock Exchange during the day. The stock closed at US$27.88, up $11.69. At presstime, the price had been edging upward.
Catherine Gignac, analyst for Deacon Capital, was not surprised by the long-awaited acquisition of Getchell, though she found the price higher than expected. Getchell was considered to be a logical takeover target after Newmont acquired Santa Fe Pacific Gold in 1997. Getchell Gold was previously known as FirstMiss Gold, which, in turn, was spun off from First Mississippi in 1995.
Lawrence Strauss, analyst for Canaccord Capital, also views Placer’s offer as pricey. “While the Getchell acquisition appears to be expensive in the near term and even in the long term under current gold price conditions, it should provide another large reserve and production mine for Placer for many years ahead,” he says. “It is simply a high-leverage acquisition.”
Placer won the bidding in a limited private auction, according to Getchell’s vice-president, Donald Robson, though he would not identify the other participants.
Placer acknowledges the price is higher than what the market expected, though company president John Willson says that “when one looks at the basic market valuation parameters of this transaction, they are positive and the merger is accretive on this basis.”
In a conference call, Willson commented on how recent market conditions have constrained the development of the property. “Getchell is a property where the resources have grown so rapidly; the mine development plan has never caught up.”
Getchell discovered the Turquoise Ridge deposit in 1994. A production decision was made in early 1996 and construction commenced on a shaft. A second ventilation shaft had to be subsequently moved after considerable mineralization was located at the shaft sight.
When the price of gold dropped, Getchell ran into a financial crunch and needed to raise money for the completion of Turquoise Ridge. In March of this year, the company completed an equity offering of 4 million shares, which raised proceeds of US$69.8 million. By the end of September, Getchell had cash totalling US$37.8 million, most of which was earmarked for Turquoise Ridge.
Proven and probable reserves at Getchell’s sole property in the Osgood mountains of northern Nevada amount to 6.2 million oz. gold, totalling 17.45 million tons grading 0.35 oz. per ton. The company has outlined another 8.6 million oz. of resources, bringing the total inventory to 14.8 million oz.
Placer sees potential for a 20-million-oz. gold resource at Getchell’s property by the end of 1999, with the possibility of more through exploration of the 50-sq. mile property. The company, which based its findings on its due diligence study, plans to spend US$20 million exploring Getchell’s property in 1999, and possibly another US$20 million in 2000.
Placer expects to produce 800,000 oz. gold annually at a cash cost below US$200 per oz. starting in 2003 by completing the development of Getchell’s Turquoise Ridge underground mine and expanding the existing mill to handle 6,700 tons per day. Placer estimates that an additional US$230 million will be needed to complete construction of the mine and upgrade of the mill.
Currently, Getchell processes 1,900 tons per day from the mill from the Getchell underground mine and development ore from Turquoise Ridge. The company produced 50,229 oz. in the third quarter and 121,921 oz. during the first nine months of 1998. Getchell’s original plan was to boost production to 400,000 oz. annually at a cash cost of US$230 per oz. once construction was complete.
The transaction is structured like a traditional merger. Getchell shareholders will gain a 23% stake in Placer for their trouble, while the company’s chairman, Kelley Williams, and chief executive officer, William Thompson, will join Placer’s board of directors. The 77 million newly issued shares of Placer in this transaction will lift the outstanding shares to more than 325 million.
The tax-free transaction has already been unanimously approved by Getchell’s board of directors and is subject to the approval of Getchell’s shareholders. The transaction is expected to close before the first quarter of next year.
With annual production of 400,000 oz. gold coming from Getchell, Placer expects to produce 3.2 million oz. gold at a cash cost of US$170 per oz., essentially unchanged from earlier estimates. In the year 2000, production should stay the same, though cash costs are expected to climb to US$180 per oz. The company expects 3.4 million oz. of equity production in both 2001 and 2002, before rising to 3.5 million oz. in 2003 once the Getchell operations reach targeted levels. The average cash costs would then be US$190 per oz. Overall, 60% of Placer’s production will be coming from North America.
Placer’s production estimates are also based on the current development of the 70% owned Las Cristinas gold mine in Venezuela and the newly acquired 50% stake in Western Areas’s South Deep gold deposit in South Africa.
In Venezuela, the company plans to invest US$575 million in constructing the open-pit operation, which is expected to produce 470,000 oz. gold annually over the life of the operation.
Placer recently became the first North American producer to buy a stake in the Witwatersrand basin, under an agreement with Western Areas. Reserves total almost 60 million oz. Placer paid US$235 million in cash in the transaction, with additional payments to be made over the life of the operation.
These two deals were the work of Placer’s acquisition team, which was formed in 1997 to search for low-cost, high-quality mines. The team was also responsible for the purchase of a 16.5% stake in
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