In mid-December, shareholders of
Under the terms first offered by Barrick in June, each Homestake share was converted into 0.53 of a Barrick share, so that former Homestake shareholders now own about 26% of Barrick’s 536 million outstanding shares.
With holders of Homestake stock, Homestake Canada exchangeable shares and Homestake CHESS depository interests eligible to vote at the meeting, the company reports that 95.7% of votes cast were in favour of the merger, representing 64.7% of all Homestake’s outstanding shares. (Barrick shareholders were not required to vote on the merger.)
Based on Barrick’s closing share price of US$15.67 on Dec. 13, the deal valued each Homestake share at US$8.31, giving the acquisition a value of US$2.2 billion and boosting Barrick’s market capitalization to US$9 billion.
The acquisition of Homestake brings Barrick 12 major mines in four countries, hosting combined reserves of 20.8 million oz. Last year, these mines produced 2.2 million oz. for Homestake at a total cash cost of US$174 per oz.
The new Barrick is due to produce 5.7 million oz. gold in 2002 at a cash cost of about US$165 per oz., from a reserve base of 84.3 million oz. The company also has about US$900 million in cash, fuelling continued speculation about future acquisitions.
The merged company is the world’s largest gold miner if measured by market capitalization, or the second-largest, after
Barrick’s head office will continue to be in Toronto, though several Homestake personnel have been appointed to senior Barrick positions: Homestake Chairman and Chief Executive Officer Jack Thompson has become vice-chairman and a director; Steve Orr has become vice-president of North American operations; and Greg Lang has become vice-president of Australian operations.
Barrick expects to realize savings of US$60 million next year, as a result of lower taxes and administrative expenses.
In coming years, one particular focus for savings will be the adjoining Pascua-Lama and Veladero gold properties in Chile and Argentina, respectively. With the district now under single ownership, the company can devise a development plan ensuring lower capital and operating costs.
At the end of 2000, Pascua-Lama hosted proven and probable reserves containing 17.5 million oz. gold and 594 million oz. silver in 314 million tons. Reserves at Veladero (as defined by Homestake) contain 5.5 million oz. gold and 81.2 million oz. silver in 118.3 million tons.
Barrick had delayed construction at the Pascua-Lama project late last year, blaming the slumping gold price.
Barrick says the newly merged company will be stronger in several respects:
– it will have the highest earnings, cash flow and profit margins in the gold industry;
– it will have the industry’s only A-rated balance sheet and a gold-hedging program that has earned an average premium of US$68 per oz. over the spot price for the past 14 years;
– it will own a large, low-cost asset base of mines and development projects with the lowest geo-political risk profile among senior producers (54% of the merged company’s reserves are in North America and Australia; 33% are in South America);
– the new Barrick will have a market capitalization and trading liquidity that should place it in the top 100 of the Standard & Poor’s 500.
“Going forward, our goal is to be the most profitable, lowest-cost producer — not to be the biggest producer,” says Barrick President Randall Oliphant.
The company’s gold hedging should continue to provide security during periods of low gold prices while maintaining flexibility to participate in higher spot prices.
Even with the inclusion of Homestake’s forward sales, Barrick says its hedge book is “in line with its historic parameters,” with some 18.3 million oz. in spot-deferred contracts priced at an average of US$345 per oz. on the books at end of the third quarter this year.
In the longer term, Barrick plans to sell a portion of its production into the spot market.
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