Barrick Gold Corp. (ABX) Chairman Peter Munk said his company’s C$7.3 billion ($7.6 billion) purchase of copper producer Equinox Minerals Ltd. (EQN) won’t distract it from focusing on mining the precious metal.
Barrick needs acquisitions to grow, and gold mines are too expensive, Munk said today at the Bloomberg Canada Economic Summit in Toronto.
Equinox “generates cash that I can use to develop my reserves, so I can accelerate my ability to grow in gold by buying a cash-producing and cash-generating asset,” he said.
The deal gives Barrick control of the Lumwana copper mine in Zambia and Saudi Arabia’s biggest deposit of the industrial metal. Barrick has fallen 14 percent since April 21, the last trading day in Toronto before it agreed to buy Equinox. The shares have declined on concern the company is reducing its focus on gold in favor of further diversification into copper.
David Haughton, a Toronto-based analyst at Bank of Montreal, cut his rating on Barrick to “market perform” from “outperform” on April 25. Copper miners trade on a smaller multiple of earnings than gold companies, he said in a note.
Gold mines now sell for about seven times what they did 10 years ago, Munk said.
“Gold-company valuations have been driven up very high,” Munk said. “To do today an acquisition in gold, to buy a junior, is very hard to justify.”
Equinox will also boost Barrick’s gold output, he said.
“The Equinox assets in Zambia happen to be in world’s second-most prolific gold-producing belt,” he said. “In the next five to 10 years, we’ll be able to find, hopefully, more and more gold.”
“I know it’s unorthodox,” he said of the Equinox deal. “But you keep on doing orthodox things, then you’re part of the herd.”
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