Barrick Acquires Copper Mine With $7.3 Billion Offer

Canada, May 02, 2011 (The Citizen/All Africa Global Media via COMTEX) -- Over the past couple of years, Aaron Regent made it clear he is keen on copper as well as gold. But hardly anyone saw this coming.By offering a stunning $7.3 billion for copper miner Equinox Minerals Ltd., and outbidding a Chinese company in the process, Barrick Gold Corp. tore up the rulebook for gold companies, which are conditioned to do acquisitions with their primary commodity in mind.

Large gold miners like Barrick produce copper because it comes as a byproduct in their gold mines. But with this friendly takeover bid, the world's biggest gold company signalled it sees great growth potential in non-gold assets. Equinox does not produce gold from its flagship Lumwana copper mine in Zambia.

"We think copper will be well-supported for the foreseeable future," Mr. Regent, Barrick's chief executive, said in an interview.Investors buy Barrick for gold exposure rather than copper, so he will have to convince them of the merits of this transaction. Otherwise, experts said the company's valuation multiples, already low by gold industry standards, could shrink further.

Mr. Regent pointed out that Barrick will still be deriving about 80 per cent of its revenue from gold if this takeover succeeds, which is in line with its peers. And since the Barrick bid is all-cash (and financed by cheap debt), its gold exposure per share is not diluted. Its copper production doubles to around 600 million pounds.

While investors agreed with him that Lumwana is the kind of world-class copper asset that rarely comes available, the lingering question was: Why not pursue gold instead?

"Barrick's opened a door where even if this deal falls away, people see that they're perfectly content to buy nongold assets. So then the question is, what else might they go after?" said Dennis da Silva, a resource fund manager at Middlefield Capital.

Barrick shares closed down almost 7 per cent on the day as investors tried to make sense of the transaction. Analyst opinion ranged from positive to baffled, with George Topping of Stifel Nicolaus calling the bid "unfathomable."

He said it increases Barrick's risk profile, noting that mining taxes in Zambia are a key unresolved issue.

There is a good chance Barrick could be outbid. Its friendly offer for Equinox trumps a hostile offer from Chinese company Minmetals Resources Ltd., a subsidiary of state-owned giant China Minmetals Corp.

Minmetals has access to vast amounts of capital from Chinese banks and institutions, and may tap it to raise its offer.

Equinox shares closed 2.7 per cent above the Barrick bid, suggesting some arbitrageurs think a higher Minmetals offer is possible."We're not naive to the fact that they could be a formidable competitor and they have growth ambition," Mr. Regent said."By the same token, we can't not do things out of fear the Chinese may or may not respond."

Minmetals has been slow in its pursuit of Equinox. The company first proposed a takeover on April 3, but never launched an official bid. Barrick recognized that it could pre-empt Minmetals if it moved quickly after Equinox was put in play, and that is exactly what it did.

Barrick is the fifth company to enter a wild mining takeover saga that began in January when Lundin Mining Corp. and Inmet Mining Corp. agreed to a merger of equals. The deal fell apart after Equinox made a hostile bid for Lundin, and that was followed by Minmetals' hostile bid for Equinox. As part of the agreement with Barrick, Equinox abandoned its pursuit of Lundin.

Equinox CEO and c o founder Craig Williams said it was hard to give up his company after 18 years of work, but believes he got a good outcome for shareholders.

"Subsequent to the [Minmetals] proposal, we were approached by a number of companies that were interested, and Barrick took the bid between their teeth and made us a proposal that we thought was pretty attractive," he said.