Barrick Back in the Buying Game

Includes: ABX, EQXMF, JJC
by: Streetwise Blog

When Kinross Gold (NYSE:KGC) and Goldcorp (NYSE:GG) were out buying companies in the second half of 2010, Barrick Gold Corp. (NYSE:ABX) stayed quiet. Then rival Newmont Gold (NYSE:NEM) bought Fronteer Mining; still Barrick kept a low profile.

The silence was finally broken on Monday with a surprise $7.3 billion bid for Equinox Minerals Ltd. (OTC:EQXMF). However, the assets in this deal have raised some eyebrows.

Barrick has historically played down its interest in copper, instead preferring to emphasize its interest in gold. Monday’s deal comes in contrast to that position and extends a streak of interest in copper plays. The last deal Barrick struck was for an additional 25 percent stake in the Cerro Casale gold-copper project in Chile for $474 million. The position was purchased from Kinross, and raised Barrick’s ownership to 75 percent of the project.

On a conference call Monday, Barrick president and CEO Aaron Regent addressed the concerns. Although a successful takeover of Equinox would boost the company’s non-gold revenue to 20 percent of its total, he said that 80-20 ratio is more or less in line with Newmont’s revenue breakdown.

Mr. Regent also isn’t worried about copper’s long-term value, which some people predict is bound to fall after skyrocketing over the last six months. Barrick believes the long-term forecasts are actually undervalued, because higher costs of production and lower mineral grades will result in high prices due to fewer miners being able to produce the metal.

That Barrick is buying an African miner also has some people alarmed, especially because the company spun off its Tanzanian gold assets into a separate company early in 2010. But Mr. Regent made a distinction between gold assets and African copper, and said the African copper belt is a critical area for a company as big as Barrick. "If you are a global mining company you need to have a presence in this part of the world," Mr. Regent said.

Morgan Stanley and RBC Dominion Securities are Barrick’s financial advisers for the deal, while Ogilvy Renault LLP, Sullivan & Cromwell LLP and Clayton Utz are providing legal advice. In other words, this deal could bring about big fees for a slew of firms.

It should also be noted that Rick McCreary, former CIBC banker and the new head of corporate development at Barrick, started his new job only a few weeks ago. That must have made negotiations with CIBC, Equinox’s lead banker, that much easier.