Barrick Gold offered yesterday to buy Canadian rival Placer Dome for US$9.2 billion in cash and shares in a deal that would merge two of the world's top gold mining companies, the firm announced.
"[The merger] would make us the largest gold company in the world in terms of reserves and production," Barrick's chief executive, Greg Wilkins, said.
"But this transaction isn't about size. It's about providing the assets and development pipeline for sustainable project development and sustainable growth," he said.
Placer Dome shareholders would receive US$20.50 per share, 87 percent in Barrick shares and 13 percent in cash, representing a 24 percent premium over Placer Dome's closing price on Friday.
The new firm would have 149.8 million ounces in proven and probable gold reserves and an estimated production (based on this year's numbers) of 8.3 to 8.4 million ounces of gold with an "unrivalled pipeline of development projects and exploration properties," Wilkins said.
This would place the merged company ahead of US-based leader Newmont Mining at a time when gold prices are soaring.
"It's a blockbuster deal with the creation of a new 800-pound gorilla," said analyst John Ing of Maison Placements Canada.
Placer Dome did not respond to the unsolicited offer yesterday, but said in a statement its board of directors would meet and comment after reviewing the proposal.
Wilkins said the integrated company could expect savings of US$240 million from operational and tax synergies.
"There is a natural fit between key Placer Dome assets and our own," Wilkins said.
The two companies have operations near one another in the US state of Nevada, Chile, Australia and Tanzania.
Analysts agreed.
"These two have mines next door to each other, so it's good to consolidate under one roof," Ing said.
The merger deal is the first significant gold industry consolidation since last year when a number of deals were announced, but not completed.
"It went quiet after many tries and failures and going back to the drawing board. This deal signals a restart. Someone has hit the play button on consolidation," HSBC Securities analyst Victor Flores said.
With no new deposits found to replace depleting reserves, gold companies must look to consolidation and cost-cutting measures to boost profits, analysts said.
Barrick has spent the past two years cutting costs and looking for an acquisition, Wilkins noted.
But, the synergies it found in Placer Dome are equally attractive to Newmont, Flores said.
Wilkins dismissed the possibility of interlopers scuttling the deal: "It's uniquely Canadian and there are tax and regulatory advantages ... which I think will discourage others from competing."
But analysts are split.
"I think the chances are very high actually [of a hostile bid by another company]. Newmont would be No.1," said Michael Fowler of Desjardins Securities.
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