Barrick Gold Corp, the world’s biggest gold company, agreed to buy copper producer Equinox Minerals Ltd for C$7.32 billion ($7.69 billion) in cash, trumping an offer from China’s Minmetals Resources Ltd.
Investors in Equinox will get C$8.15 for each share, Toronto-based Barrick said today in a statement. The offer is 17 per cent more than Perth-based Equinox’s average share price over the last 20 days of trading. Equinox will drop its bid for Canadian copper and zinc producer Lundin Mining Corp.
Buying Equinox would further expand Barrick’s copper output by giving it control of the Lumwana mine in Zambia and Saudi Arabia’s biggest deposit of the metal. Mining companies are competing to secure copper assets after a dearth of new projects and demand from China drove prices to a record this year.
“For Equinox shareholders, this is a great deal,” John Goldsmith, a Toronto-based fund manager at Montrusco Bolton Investments Inc, which oversees about C$4.9 billion. “There won’t be another bid higher than this. It more than fully values Equinox.”
Equinox rose 86 cents, or 11 per cent, to C$8.37 as of 10.17 am in Toronto Stock Exchange trading. The shares have gained 37 per cent this year. Barrick dropped C$3.13, or 5.9 per cent, to C$49.94 in Toronto.
‘Unique Situation’
Barrick’s offer is the latest of copper-related takeover bids this year. On February 28, Equinox made an unsolicited offer for Lundin. Toronto-based Lundin agreed January 12 to be acquired for C$4.1 billion by Inmet Mining Corp, another Canadian copper producer. That deal ended March 29. China’s state-owned Minmetals on April 3 made an unsolicited C$7-a-share bid for Equinox.
“This is a unique situation,” Barrick Chief Executive Officer Aaron Regent said on a conference call. “It’s very rare that assets like this come on the market.”
The deal would be the second-largest acquisition by Barrick, after its $10.2 billion purchase of Placer Dome Inc in 2005, according to data compiled by Bloomberg. It’s proposing to pay 1.39 times Equinox’s enterprise value, compared with the 1.36 median multiple of 10 comparable deals in the past four years, according to Bloomberg data.
“It really shows how few junior companies are available for acquisition by the major gold companies,” said John Stephenson, a senior portfolio manager at First Asset Investment Management Inc in Toronto, which manages about C$2.5 billion.
Deal Financing
Barrick said it has sufficient cash and financing in place. Its $5 billion credit facility includes a bridge loan and a revolving line of credit underwritten by Royal Bank of Canada and Morgan Stanley. Barrick also has an existing $1.5 billion credit facility and $4 billion of cash as of December 31, Barrick said in the statement.
Barrick is rated A- with a stable outlook by Standard & Poor’s and Baa1 with a stable outlook by Moody’s Investors Service.
“The rating agencies are likely going to affirm their ratings on Barrick, despite the full price and all-cash nature of the transaction,” says Joel Levington, a managing director in New York at Brookfield Investment Management Inc. “The combination of excess cash on hand, expected free cash flow in 2011 and 2012, and enhanced asset mix will help support Barrick’s ratings.”
