Barrick Gold Corp. (ABX), the world’s biggest gold company, agreed to buy copper producer Equinox Minerals Ltd. (EQN) for C$7.32 billion ($7.66 billion) in cash, topping a hostile offer from China’s Minmetals Resources Ltd. (1208)
Investors in Equinox will get C$8.15 for each share, Toronto-based Barrick said in a statement. The offer is 17 percent more than Perth, Australia-based Equinox’s average share price over the past 20 days of trading. Equinox agreed to drop its bid for Canadian copper and zinc producer Lundin Mining Corp. (LUN)
Buying Equinox would give Barrick control of the Lumwana mine in Zambia and Saudi Arabia’s biggest copper deposit, broadening its metal output as gold rose to a record yesterday. The offer may spur a bidding contest with state-controlled Minmetals Resources as a dearth of new projects and demand from China drove copper prices up 22 percent in the past year.
“For Equinox shareholders, this is a great deal,” said John Goldsmith, a Toronto-based fund manager at Montrusco Bolton Investments Inc., which oversees about C$4.9 billion. “It more than fully values Equinox.”
Equinox rose 86 cents, or 11 percent, to C$8.37 as of 4 p.m. in Toronto Stock Exchange trading yesterday. The shares have gained 37 percent this year. Equinox, which won’t trade in Sydney today because it’s a public holiday, closed 2.7 percent higher than Barrick’s bid price, indicating investors expect a sweeter bid.
Barrick dropped C$3.57, or 6.7 percent, to close at C$49.50 in Toronto, the biggest decline since Dec. 4, 2009.
Barrick has put a “fair offer on the table,” Chief Executive Officer Aaron Regent said today on a conference call. “If there’s another bid coming, we’ll have to wait and see.”
The bid takes the value of pending or announced offers involving copper companies to $14.1 billion this quarter, the most since the last quarter of 2006, according to data compiled by Bloomberg. It comes after Equinox on Feb. 28 made an unsolicited offer for Lundin. Toronto-based Lundin agreed Jan. 12 to be acquired for C$4.1 billion by Inmet Mining Corp., another Canadian copper producer. That deal expired on March 29.
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.
Copper for delivery in three months on the London Metal Exchange traded at a record $10,190 a ton on Feb. 15. The metal, which is used in electric cables and plumbing, will average $9,750 this year and $10,150 in 2012, according to the median of analysts’ estimates compiled by Bloomberg. Gold for immediate delivery climbed to a record $1,518.32 an ounce yesterday. It traded at $1,505.45 at 10:33 a.m. in Sydney.
Barrick was advised on the takeover by Morgan Stanley and Royal Bank of Canada’s RBC Capital Markets, while Canadian Imperial Bank of Commerce’s CIBC World Markets, Goldman Sachs Group Inc. and Toronto-Dominion Bank’s TD Securities advised Equinox.
Equinox will pay a so-called break fee of C$250 million to Barrick if it accepts a better offer.
Barrick has credit facilities of at least $6.5 billion and $4 billion of cash as of Dec. 31, indicating it has sufficient financing for the deal. Moody’s Investors Service put Barrick’s Baa1 rating on review for a possible downgrade after the takeover, saying it will examine the costs of expanding Equinox’s projects and Barrick’s own planned investments.
“Moody’s review will focus on the earnings and cash flow to be generated from the acquisition and include an analysis of production levels and costs, the Zambian mine being relatively high cost; the potential to increase the reserve life and any cost efficiencies that can be achieved,” Moody’s said in a statement yesterday.
Barrick would gain access to Equinox’s Lumwana project in Zambia, which processes about 20 million metric tons of ore per year into a copper concentrate. Equinox is aiming to produce 145,000 tons of copper this year, according to its website. Equinox also bought the biggest copper deposit in Saudi Arabia in January, and its first production is expected in 2012.
Gold accounted 86.9 percent of Barrick’s revenue in 2010 and copper produced 12 percent. The balance came from oil and gas.
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