Placer Dome shoots down Barrick offer

Placer Dome (PDG-T, PDG-N) is telling its shareholders — in no uncertain terms — to shun Barrick Gold‘s (ABX-T, ABX-N) hostile takeover bid.

“It’s easy to see why Barrick needs Placer Dome,” Placer Dome’s president and chief executive Peter Tomsett said during a conference call, “but it’s difficult to understand why Placer Dome should want Barrick.”

On the same call Placer Dome’s chairman Robert Franklin joined Tomsett in laying out the three primary reasons for rejecting the offer:

• Barrick’s declining long-term production compared to Placer’s increasing production means Barrick isn’t giving adequate value for the company.
• The timing of the offer — when Barrick shares are high — and the use of those share in the bid, was said to be opportunistic on Barrick’s part.
• Placer shareholders will not be adequately compensated for the risk associated with owning Barrick stocks — Barrick’s large Pascua-Lama project on the Argentine and Chilean border was given as an example of such risk.

On Oct. 31 Barrick offered to buy Placer Dome for either $20.50 a share or 0.7518 of a Barrick share and 5 cash, for a total value of US$9.13 billion. Goldcorp (G-T, GG-N) is also part of the deal, agreeing to buy Placer’s major Canadian assets for $1.35 billion in cash.

In Toronto on Wednesday morning, Vancouver-based Placer’s shares were off 0.4% or 11 to $25.69 on roughly 1.5 million shares.

Tomsett used the sale of Canadian assets to Goldcorp to punch a hole in the idea that a sale to Barrick would keep the company attached to its Canadian roots.

“I find it ironic that Barrick is out there saying they want to create a Canadian powerhouse and then they turn around and want to sell all of the Canadian assets,” Tomsett said on the conference call. “It doesn’t quite ring true to me.”

With gold approaching US$500 per oz., Toronto-based Barrick — the world’s third-biggest gold producer — wants the 68% boost in reserves that the acquisition of Placer Dome would bring. If acquired, Barrick would become the world’s largest producer at 8.4 million oz. per year.

Yesterday, Dow Jones Newswire cited an unnamed source as saying that Newmont Mining (NMC-T, NEM-N) signed a secrecy agreement with Placer Dome that allows it to inspect the company’s internal financial data.

Mark Smith, an analyst with Dundee Securities, doesn’t think Newmont will be the only major taking a serious look at Placer Dome.

“I’d be quite surprised if every significant gold company… were not involved in these discussions,” says Smith, “It’s just standard practice.”

While Smith says Barrick’s bid was “sound”, he says there’s always room for a “sweetener” and that Placers management was “obligated to find a white knight.”

Smith says Placer Dome’s contention that Barrick’s production is on a long term decline while its own will be increasing as of 2010 is “reasonable,” although such guidance does include some Placer projects that still have risk associated with them. Smith doesn’t hold shares in Placer Dome.