TORONTO — The world’s biggest gold miner Barrick Gold Corp. (TSX:ABX) is making a bold move into the primary copper sector with a friendly $7.3 billion bid to acquire Canadian-Australian miner Equinox Minerals Ltd.
Barrick said Monday it wants to take advantage of a “rarely” available opportunity to buy a well-established, large copper miner by acquiring Equinox and beating a rival hostile bid for the company.
Barrick has been growing its copper output in recent years as the acquisition and expansion of new gold projects around the world also leads to co-mining of copper from the mixed metal ore where gold is found.
But Monday’s deal gives the company a major new copper source to add to the 300 million pounds it expects to produce this year from its operations in Chile and elsewhere.
Copper is widely used in building, industry and capital projects and has seen demand soar from China and other fast-growing Asian economies.
Barrick is banking on industry and urbanization in China and India to drive up demand for copper by three per cent a year in the “foreseeable future.”
“I’d say there is scarcity in opportunities likes this,” Barrick CEO Aaron Regent said during a conference call to explain his company’s rationale for wanting to buy Equinox.
“These types of assets rarely become available on the market.”
In its friendly deal, Barrick is offering $8.15 per Equinox share — well above the $7 per share put forward by Chinese-owned Minmetals Resources earlier this month in its own hostile bid valued at $6.3 billion.
Equinox shares were up 87 cents or more than 11 per cent at $8.37 in trading Monday with 42.5 million shares traded on the Toronto Stock Exchange. Barrick stock was down $3.37, or six per cent, at $49.70, indicating that investors thought it offered too much for Equinox.
Barrick Gold has such a large part of the gold market already, and needs to go into copper mining if it wants to grow, said Elizabeth Collins, an equity analyst at Morningstar Research in Chicago.
“Their gold production is so immense in pure numbers and absolute terms that for them to move the needle and offset more mature mines, they need to develop massive projects,” she said, explaining that Equinox is an attractive target because it is a large company with its established Lumwana copper mine in Zambia, a country that is mining-friendly.
“Equinox will be a meaningful contributor to Barrick’s top line to bottom line.”
It would be difficult for Barrick to expand its gold mine holdings because the number of available projects is scarce. Companies are scrambling to get a piece of the business while the price of gold tops record highs every day — closing at $1,509 an ounce Monday.
Barrick would need to find large projects to make new gold mines worth its while, but they don’t really exist anymore, said David West at Salman Partners in Vancouver.
“My expectation is that you’re going to see them, as well as some of the other gold companies, go more and more towards copper production as the next best thing to gold,” he said, adding that Equinox would make up between five and 10 per cent of Barrick’s revenues, creating a large impact on earnings potential.
Equinox (TSX:EQN) president and CEO Craig Williams said in a news release that the Barrick bid allows Equinox shareholders to get immediate value and employees to be part of a world class mining company.
“We believe this offer is superior to the public proposal made by Minmetals in terms of certainty and value. Given the immediate value creation opportunity, we are recommending our shareholders tender to the Barrick offer.”
Barrick’s move continues the Toronto company’s acquisition strategy that has seen the miner, controlled by financier Peter Munk, become the world’s biggest gold operator in recent years.
From its early takeover of Lac Minerals, to major acquisitions of Homestake Mining of the U.S. in 2001 and Vancouver-based Placer Dome Inc. in 2006, Barrick has grown to operate around the globe and produced 7.8 million ounces of gold last year on several continents.
Regent praised Equinox as a large producer with long-term assets and has a high probability of resource expansion.
The acquisition is expected to double Barrick’s current copper production to around 600 million pounds and to more than 700 million pounds by the end of 2012.
Regent also touted the potential of Equinox’s 70 per cent owned Jabal Sayid project in Saudi Arabia, and described both countries as having “attractive country profiles for foreign investment.”
Minmetals Resources said Monday that it needs time to review Barrick’s announced offer before deciding how to proceed with its own, said spokesman Martin McFarlane.
But if a bidding war begins, Barrick would likely fight until it ends up the winner, said analyst West. It lost a battle with Goldcorp. (TSX:G) for the El Morro mine in Chile a few months ago.
“So my assumption is they’re probably going to try pretty hard for this asset,” he said.
Under Monday’s agreement, Equinox is allowed to consider other offers. Barrick has the right to match any offers and Equinox would have to pay a $250 million penalty if the deal is cancelled.
Meanwhile, Equinox said it would drop its controversial takeover bid for Lundin Mining Corp. (TSX:LUN) as part of the Barrick deal. Equinox was criticized for the maximum $2.4 billion in loans and 380 million in shares it would have needed to complete the offer.
Perth, Australia-based Equinox is listed on the Toronto and Australian stock exchanges and also has offices in Canada and Zambia.
Barrick, with about 25 mines around the world, employs about 20,000 people.