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Au Capital: The West''s economic policy is only denial
All Eyes on Newmont in Latest Gold Rush
By Andy Hoffman
The Globe and Mail, Toronto
Wednesday, November 2, 2005
http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/200511
02/RNEWMONT02/TPBusiness/Canadian
Newmont Mining Corp.'s next move may very well depend on how much
size matters to its Canadian-born president, Pierre Lassonde.
If successful, Barrick Gold Corp.'s $9.2-billion (U.S.) hostile bid
for Vancouver's Placer Dome Inc. would topple Denver-based Newmont's
hold on the title of world's top gold producer.
Analysts say it's a mantle Newmont and Mr. Lassonde may not want to
give up.
"It's kind of the industry's dirty little secret," said Victor
Flores, an analyst with HSBC Securities. "They all talk about
wanting to be the most profitable, but boy, do they all want to be
the biggest."
Newmont became the world's biggest gold company in 2001 with a $4.2-
billion, three-way merger between Australia's Normandy Mining Ltd.
and Canada's Franco-Nevada Mining Corp. Mr. Lassonde co-founded
Franco-Nevada with long-time business partner Seymour Schulich in
1982.
Mr. Schulich has stepped away from day-to-day operations of the
company but remains on Newmont's board. Mr. Lassonde, meanwhile, is
responsible for much of its strategy and operations along with
chairman and chief executive officer Wayne Murdy.
Sources say the company has hired investment bankers to explore the
possibility of a bid. Calls to Mr. Lassonde's officer in Denver were
not returned. A company official said the company does not comment
on merger and acquisition activity in the sector.
"I think Newmont is probably bothered a bit because they enjoyed
being at the front of the line," said John Embry, Sprott Securities'
chief investment strategist.
Gold industry players point to Newmont as the most likely company to
step up with a counter-bid for Placer. They say it could achieve
cost savings similar to the ones expected by Barrick by combining
Newmont's existing operations in Nevada and Australia with Placer's.
Newmont, however, is unlikely to be interested in all of Placer's
operations, particularly those in Africa. If Newmont were to decide
to launch a competing bid, analysts said it would likely be done in
conjunction with other producers, such as Kinross Gold Corp. of
Toronto and South Africa's Gold Fields Ltd. "I suspect they might
need some help," said Michael Fowler, an analyst at Desjardins
Securities.
Barrick's offer contains a similar arrangement. Toronto-based
Goldcorp Inc. has agreed to pay Barrick $1.35-billion in cash for
several of Placer's mining assets if Barrick succeeds in its
takeover bid.
J.P. Morgan analyst John Bridges said Newmont is "the obvious and
quite possibly the only company that could take on the
[Barrick/Goldcorp] group."
He also suggested a Newmont counter-bid would likely include side
deals to sell some Placer assets. Mr. Bridges pointed to Kinross,
AngloGold Ashanti Ltd. of South Africa, or BHP Billiton Ltd. of
Australia as possible Newmont partners.
"[Newmont's] management group in Nevada could probably take control
of Placer's Nevada assets without pausing for breath. The Australian
assets could be a useful fit. But Newmont would probably be less
interested in the East and South African assets."
Analysts doubted Newmont would have trouble raising capital.
"I think they could draw on the market if they wanted to," said Mark
Smith of Dundee Securities. He said a Newmont bid would likely
include a stock and cash component, similar to the Barrick offer.
"They are larger than Barrick and they certainly have the financial
means to take on Barrick," Mr. Flores said, adding that Newmont was
sitting on roughly $2-billion in cash and liquid assets at the end
of the third quarter.
With the bidding starting at $9.2-billion for Placer, some industry
players question whether Newmont could achieve enough cost savings
to make a bid worthwhile.
"I don't think they'd do anything stupid," Mr. Embry said. "One
thing about Pierre and Seymour -- they made their living by buying
smart. They like to buy assets on the cheap."
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