Canadian gold miner Barrick Gold Corp. agreed to buy rival Homestake Mining Co. for about $2.2 billion in stock Monday to gain mines in Australia and the Americas where it can shave costs.
Barrick would pay 0.53 share for each Homestake share. That values the Walnut Creek, Calif.-based company at about $8.31 a share, or 25% more than its closing price Friday. Barrick also would assume $225 million of long-term debt.
The deal, approved by the boards of both companies, would boost Barrick production by more than 2 million ounces a year to 6 million ounces. It would catapult the Toronto-based company to become the world's second-largest gold producer behind South Africa's AngloGold Ltd.
The acquisition comes amid expectations of further consolidation in gold mining, as bullion prices languish near 20-year lows and firms struggle to cut costs.
Speculation about industry mergers has helped drive many gold mining shares sharply higher this year, after falling late last year to record or near-record lows.
Homestake would reduce Barrick's reliance on mines in the U.S., where a strong dollar has increased costs relative to other parts of the world. Barrick also is betting it can lower Homestake's production costs, which at $174 per ounce are 20% higher than Barrick's, investors said.
"Barrick figures it can go in and use the Barrick way of running mines on some of the Homestake operations," said money manager Kevin Nyysola of Investors Group Inc. in Winnipeg, Canada. "They're one of the best operators in the gold industry."
The companies said the merger will produce about $55 million in savings beginning next year, mostly from lower taxes and reduced exploration and administration expenses.
News of the deal sent Homestake shares up $1.40, or 21%, to $8.05, while Barrick shares slid 75 cents, or 5%, to $15.68. Both trade on the New York Stock Exchange.
The acquisition would marry a fixture of U.S. corporate history with a former oil company founded in 1980 as Barrick Petroleum Corp.
Homestake's NYSE stock listing dates back to 1879, and its namesake mine, a deposit discovered in 1876 in what is now South Dakota, generated part of the fortune that the Hearst family used to branch into newspapers, starting with the San Francisco Examiner.
Barrick has grown from one mine in 1983 to a worldwide powerhouse with operations in Canada, the U.S., Peru and Tanzania.
Barrick has continued to be profitable even as gold prices have tumbled in recent years. Homestake, by contrast, has reported losses in eight quarters since the first quarter of 1997.
Bullion prices have been weighed down in part by some foreign central banks' heavy sales of gold reserves since the mid-'90s, boosting global supplies of the metal.
Also, as inflation has waned worldwide since the early '90s, fewer investors have turned to gold as an inflation hedge.
Analysts said Barrick Chief Executive Randall Oliphant is interested in Homestake's Australian mines, where Barrick sees potential to expand. Homestake is the second-biggest gold producer in Australia. Barrick's production outside the U.S. is mostly in Peru.
In New York trading Monday, near-term gold futures rose $1.40 to $273.70 per troy ounce.
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Gold's Price is Languishing . . .
Despite intermittent rallies in recent years, gold's price is near a 20-year low, as global supplies continue to be more than ample. Supplies have been boosted by central banks' selling of their gold reserves.
Near-term gold futures in New York, monthly closes and latest, per troy ounce
Monday: $273.70 per troy ounce
. . . But Mining Stocks Have Rallied
Most gold-mining stocks have rallied this year after falling late in 2000 to their lowest levels since at least the 1980s.
Ticker Mon. Mon. YTD pctg. Stock symbol close change change Echo Bay Mines ECO $1.03 +$0.03 +175% Hecla Mining HL 1.30 +0.09 +160 Homestake Mining HM 8.05 +1.40 +92 Goldcorp GG 11.20 +0.43 +85 Ashanti Goldfields ASL 3.13 +0.31 +67 Agnico-Eagle AEM 8.19 +0.11 +37 Harmony Gold HGMCY 5.65 +0.28 +21 Newmont Mining NEM 20.10 -0.31 +18 Placer Dome PDG 10.40 +0.28 +8 Barrick Gold ABX 15.68 -0.75 -4 Standard & Poor's 500 1,218.60 -6.75 -8
Source: Bloomberg News