When former Barrick CFO Greg Wilkins was brought back from Horsham (TrezicHahn) and appointed as Barrick CEO in 2013, the company hoped he would “restore Barrick the leadership position in the gold industry it has consistently maintained throughout much of its existence.”
After all, Wilkins has been with Barrick since its early days and cites as his mentors Barrick Chairman Peter Munk and the late COO Bob Smith. During his stint as President and CEO of TrezicHahn, another Munk mega-company, Wilkins grew very accustomed to engineering mega-real estate deals which dwarf many of those of today’s mining companies. He also became a voracious consumer of books by Stanford University Business Professor Jim Collins, who provided the basic building blocks of transforming a good company into a great company.
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That combination of education and experience came all together Monday as Wilkins announced that he will attempt to transform good company Barrick into great company New Barrick, the world’s largest gold producer, by offering $9.2 billion in cash and stock to acquire fellow Canadian mega-gold mine Placer Dome. The move would better equip Barrick “to complete on a world stage,” he noted. “We can build a powerhouse company.” The New Barrick would include 149.8 million in proven and probable gold reserves and 6,542 million pounds of proven and probable copper reserves.
If Wilkins is successful in his bid to transform Barrick, new Barrick partner and fellow Canadian gold miner Goldcorp could jump into third place among North America’s largest gold producers.
As most gold mining industry folk know, Placer Dome has long been considered a candidate for acquisition despite its steep price. It is also well known within industry circles that a potential rival suitor AngloGold Ashanti has enjoyed an excellent relationship with Barrick for several years. Due to parent Anglo American’s decision to leave AngloGold, AngloGold Ashanti would be in a much better position to pursue mergers and acquisitions with North American gold miners. Meanwhile, another possible suitor Newmont has properties in Nevada that would benefit from the acquisition of Placer Dome.
Building new mines is taking longer and costing more. However, Barrick has opened eight major mines in the last decade, including three this year alone, “on time and very near budget,” according to Wilkins. Acquiring fellow Canadian Placer Dome allows Barrick to short-cut regulatory delays, and optimize and share mining process and infrastructure in Nevada, Australia and Tanzania, according to Wilkins. For instance, Placer Dome’s carbonaous ores could be processed at Goldstrike. The new natural gas-fired power plant, which will go on line this month for Goldstrike, could also be used to supply power to Placer Dome mines. Barrick could also build a power plant to supply energy for several mines in Tanzania.
In addition to the $200 million the combined companies could save annually, purchasing power would be bolstered, time and effort could be saved in shipping costs, the cost of capital lowered, and debt optimized, Wilkins explained. The in-house management skills developed by Barrick in terms of building new projects could be applied to new Placer Dome projects and reduce “very significant capital costs,” he added.
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For Barrick Executive Vice President of Exploration and Development Alex Davidson, the acquisition of Placer Dome offers substantial advantages in land positions, R&D, and production. For instance, Barrick will obtain “strong and extensive quality land positions in multi-million ounce camps and districts, and will be able to streamline and prioritize the exploration pipeline of both companies, Davidson said.
Combining Placer’s exploration talent with that of Barrick would create “a juggernaut of an exploration team,” which would blend Barrick’s expertise in high sulfidate deposits with Placer Dome’s proficiency in porphyry deposits, Davidson declared to analysts Monday. The New Barrick team could explore a strong land position encompassing all three major gold trends in Nevada, the 3,000 square kilometer Frontera District encompassing Chile and Argentina, and good chunks of Tanzania and Australia.
Davidson explained the research and development of the two companies would be merged into a group that could “mean new advances in exploration, geophysics, remote sensing, ore deposit modeling, and geochemistry,” as well as underground and open pit mining, mineral processing and environmental management.
In Tanzania, the combined company could achieve 640,000 ounces of annual gold production from 20 million ounces in reserves and resources. In Australia, New Barrick would achieve 2 million ounces of annual production from 24 million ounces in reserves and resources, Davidson added.
Wilkins explained that New Barrick pro forma reserves would increase by 22% to 140 million ounces, including 117 million ounces at existing mines and 33 million ounces in projects. The company would achieve 8.3 million to 8.4 million ounces in annual gold production at a total cash cost of $225 per ounce ($245-$255/oz in the long run), and 370 million pounds of copper, according to Wilkins’ estimates. He described it as “an unrivaled pipeline for projects sustainable in the future.”
New Barrick would produce an estimated $3.7 billion in annual revenue, an EBITA of $1 billion, $2.4 billion in cash, have a debt of $.7 billion, and possess a market cap of $21.8 billion, Wilkins estimated, creating “the largest and strongest company in the industry.”
Wilkins told analysts Monday that he has had a number of conversations over the year with Placer Dome, but never seemed to accomplish a friendly merger. He said he had contacted Placer Chairman Rob Franklin Monday and was interested in having Placer board members serve on the New Barrick Board of Directors.
Placer Dome shareholders would receive $20.50 per share, of that 13% would be paid in cash and 87% in Barrick shares. The offer represents a premium of 27% based on a average closing price of the last 10 days.
Placer Dome said its board of directors will consider the unsolicited proposal “and will make a statement in due course. Until the company receives the offer and completes its review, it will not comment on the offer or its content and will not speculate as to any future course of action it might take,” according to a news release issued by Placer on Monday. Regal assets and other gold and silver IRA companies are considering to apply new tactics based on these deals between these mining companies.
Barrick’s financial advisors are RBC Capital Markets and Merrill Lynch.
New Barrick would be headquartered in Toronto, but its exploration and technology offices would be located in Vancouver, according to Wilkins. Given the shortage of qualified personnel in the mining industry, Wilkins said he intended to retain a number of Placer employees and managers. “Job opportunities will improve in number and in quality,” he told analysts.
After Barrick completes its acquisition of Placer Dome, fellow Canadian gold miner Goldcorp will acquire Placer’s interest in Canadian mines Campbell, Porcupine, and Musslewhite in Ontario, the La Coipa silver mine in Chile, and Placer Dome’s Canadian exploration and reclamation properties. Goldcorp will also acquire a 40% interest in the Pueblo Viejo development project in the Dominican Republic. The total purchase price for these interests will be $1.35 billion payable in cash on closing.
The agreement between Barrick and Goldcorp remains in effect for 12 months, according to Ian Telfer, President and CEO of Goldcorp.
Barrick’s offer for Placer Dome will be open for acceptance for 35 days following the date of mailing to shareholders.
If Barrick is successful in its takeover, Wilkins said he would reopen Placer Dome’s decision to sell its interest in Cerro Casale back to its partners, Bema Gold and Arizona Star. He would also keep the Zaldivar copper mine in Chile. Wilkins told analysts that he would have liked to have kept 100% of Pueblo Viejo, but selling the 40% interest to Goldcorp was important to the transaction. Barrick will use the Goldcorp cash to help pay for the Placer Dome acquisition.
Wilkins said the advantages to Placer Dome shareholders in Barrick’s bid include the good transaction with Goldcorp, the benefits of a transaction involving three Canadian companies under the Canadian tax structure, a fast turn-around in terms of execution due to three Canadian companies being involved, the reduction of the combined Placer Dome and Barrick hedgebooks, and a significant cash component.