Royal Oak withdraws bid — Barrick poised to win Lac battle

With the withdrawal of the Royal Oak Mines (TSE) bid, it appears likely that shareholders of Lac Minerals (TSE) will support the bid tendered by American Barrick Resources (TSE) and transfer control of Lac to Barrick.

This would result in the creation of Canada’s largest gold-mining company and the third-largest gold producer in the world.

The new mining giant will operate 16 mines in the Americas and hold a portfolio of several advanced projects around the world. In 1993, the combined company will have produced 2.7 million oz. (almost 1 million oz. in excess of its nearest North American competitor) and generated more than US$1.1 billion in revenue.

Barrick’s prime objective in acquiring Lac was to maintain its impressive growth record, which can be traced over the past 10 years. This growth has taken the traditional form of acquisitions followed by exploration, development and still more acquisitions.

Barrick began life as a small company with the acquisition of the Camflo gold mine in northwestern Quebec. It then carried out exploration and development, adding to reserves in the process and generating greater earnings. These earnings were then used to buy interests in, or find, other projects — such as Mercur in Utah, Holt-McDermott in Ontario and Pinson in Nevada. Revenues from these projects were, in turn, used to acquire the Goldstrike property in Nevada in the late 1980s. After completing exploration of this property, Barrick brought the Betze-Poste mine into production, and today it is developing the Meikle project.

Earnings generated by Goldstrike are being used to fund exploration in China and Peru, as well as the Lac acquisition.

Lac caught Barrick’s attention last month when, during the takeover battle, it announced increased production and reserve figures. The takeover target expanded reserves to 13.5 million from 9.2 million oz. and added a geological resource of an additional 13.5 million oz.

Lac also announced an aggressive plan to increase annual production to 1.6 million oz. in 1997 and 1998 from the current 1.1 million oz. Lac revised its figures on the basis of activity in two key areas: the Chilean mineral belt known as El Indio and the Red Mountain project in British Columbia.

El Indio — a 600-sq.-mile area that encompasses the Indio gold-copper mine, the Tambo open pit and the Nevada project — could represent the next Goldstrike for Barrick.

Previously, Lac had expanded operations at El Tambo (increasing annual production to 200,000 oz.), increased exploration at El Indio (boosting reserves to more than 1.4 million oz.) and made a development decision at the Nevada project (bumping up reserves to 2 million oz.).

Exploration at Red Mountain, near Stewart, points to a proven, probable and possible reserve and geological resource of 2 million oz.

These revised figures, indicating increased geological potential, made Lac an impossible-to-resist takeover target for Barrick.

In addition to El Indio and Red Mountain, Lac operates seven North American mines. These include the two Bousquet mines and the Doyon mine in Quebec, the Macassa and Golden Patricia mines in Ontario, as well as the Toqui gold-zinc mine in Chile.

Questions have been raised as to whether Barrick will continue to operate all these projects or sell some of the less profitable ones.

Several of the Canadian operations have been suggested as candidates for being sold, including the Holt-McDermott and Macassa mines and the half interest in Doyon. Undoubtedly, companies such as Hemlo Gold Mines (TSE), Agnico-Eagle Mines (TSE) and Cambior (TSE), which have operations near those of the prospective combined company, will be considering the possibilities. For now, however, Barrick has stated that it will be reviewing all operations and that decisions regarding all operations will be made at a later date.