EDITORIAL PAGE — Lively bidding battle

The summer doldrums were kept at bay this year by the lively battle for control of Lac Minerals, launched by Royal Oak Mines in early July. The company recently withdrew from the bidding war, paving the way for rival American Barrick Resources to take over Lac and become Canada’s largest gold miner — and the third-largest in the world.

But it is a safe bet that Royal Oak President Margaret (Peggy) Witte will continue her efforts to expand the company. It is also likely that institutional shareholders and the financial establishment will back her next venture, whatever that might be.

Witte may have failed in her ambitious bid to take over a company several times the size of Royal Oak. She failed once before, too, in her initial bid to develop the Colomac gold mine in the Northwest Territories. But failure is only regrettable if it demoralizes the spirit. And that didn’t happen to Witte. After others took control of Colomac, she watched as it went into production and, not long afterwards, shut down. And when the opportunity came along, she bought Colomac back for about five cents on the dollar and put it back into production.

In the Lac battle, Witte succeeded in raising her own profile, along with that of Royal Oak. Granted, she has her critics, but even some of those naysayers acknowledged her operational skills, entrepreneurial spirit and ability to think strategically. She also identified and zeroed in on the weaknesses within Lac that made it vulnerable as a takeover target. But at the end of the day, like any good general, she had to retreat from a battle her troops could not win. Barrick already had all the qualities Witte felt Royal Oak could bring to Lac: a good operating team, an entrepreneurial outlook and the ability to keep one step ahead of the competition. And it has a few things Royal Oak doesn’t have: more seasoned and experienced management, an impressive list of highly rated mining assets and a better strategy for global expansion. Barrick also played its hand well, resisting any pressure to pay more than it felt was required to win the bid. Royal Oak had the higher bid, on face value, but it was not enough to overcome shareholders’ preference for owning Barrick shares over Royal Oak shares. Royal Oak may be doing a good job managing marginal assets, but it is no secret that its shareholders would like to see the company acquire some lower-cost assets, thereby enhancing the quality of Royal Oak “paper.” The company’s stated goal is to become a one-million-ounce gold producer within the next few years, which begs the question: Will Royal Oak go after another target, and if so, what?

There are a number of possible takeover targets within the ranks of the top dozen North American gold producers. Several are vulnerable, particularly now that institutions are keen to “maximize” the value of their shareholdings in the larger producers.

The other side of the coin is that takeovers can be costly and leave the surviving entity weakened. And there are other ways for companies to grow, such as a well defined global strategy of exploration and acquisition. Royal Oak will probably take a breather before it returns to action. Through the Lac battle, the company’s eyes were opened to opportunities in Chile, and a foray south may indeed be in the works. And it is a safe bet the company will be interested in any of Lac’s Canadian properties that might be sold by Barrick — if the price is right.