Barrick buying Homestake

June 25, 2001 Posted: 1651 GMT

NEW YORK (CNNfn) -- Barrick Gold Corp. agreed to buy U.S. gold mining rival Homestake Mining Co. in a $2.3 billion stock deal that will create the world's second-largest gold producer. 

Under the deal, Toronto-based Barrick (ABX: down $0.90 to $15.53, Research, Estimates) will swap 0.53 of a share for each Homestake share, a deal worth $8.71 a share based on Friday's prices, the companies said. That's 31 percent above Homestake's closing price Friday.

"We are teaming up with the financially strongest partner," said Jack Thompson, chairman of the 125-year old Homestake.

Walnut Creek, Calif.-based Homestake, an international mining company, has operations in the United States, Australia, Canada, Chile and Argentina. Homestake has engaged in gold mining for 125 years and has produced about 55 million ounces of gold since its inception.

The purchase of Homestake will make Barrick the leading gold producer in Canada and in the United States, and the second-largest producer in Australia, the company said in a statement.

Including Homestake's two million ounce hedge position, the merged company will have a combined gold forward sales position totaling 18 million ounces, at an average annual minimum price of $345 an ounce.

The combined company, which will be based in Toronto, will produce about 6 million ounces of gold a year at a cash cost of $156 an ounce, which the companies called the lowest of any major producer.

News of the merger caused Homestake (HM: up $1.33 to $7.98, Research, Estimates)  shares to rocket 20 percent in midday trading, while Barrick shed more than 5 percent.

The combined firm will have market capitalization approaching $10 billion, nearly twice that of competitors, Barrick CEO and President Randall Oliphant said in a conference call.

"This is a great day for Barrick and Homestake," Oliphant said on the call. "This is a first step to a low-cost, strong growth company not just in the gold environment but in any environment we encounter."

Barrick and Homestake are currently partners in the Veladero development project in northwest Argentina. Homestake owns 60 percent of the project and is the operator, while Barrick holds the other 40 percent, as calculated before the merger, the companies said.

Two weeks ago Homestake CEO Jack Thompson approached Oliphant about a possible transaction, Thompson said on the conference call. "This is a bittersweet merger," Oliphant said.  "Homestake has a proud history. The combined company will have significant financial muscle."

Thompson will join the merged company as vice chairman, Oliphant said.

Barrick is already North America's No. 2 gold mining company behind Newmont Mining Corp. (NEM: down $0.27 to $20.14, Research, Estimates), which acquired Battle Mountain Gold in a deal completed earlier this year.

The merged Barrick-Homestake will eclipse Newmont to become the continent's leading gold producer, making it second worldwide to South Africa's AngloGold Ltd. (AU: up $0.18 to $18.42, Research, Estimates), which produces about 7 million ounces of gold a year.

The transaction, valued at C$3.49 billion, will dilute 2001 earnings but will provide $55 million in tax-free cost-savings beginning in 2002, the companies said. Of the $55 million, $20 million will be in administrative expenses, $20 million will come in tax and $15 million in exploration, executives said.

The boards of both companies have approved the transaction, the companies said.

The deal, meant to be tax-free for U.S. income tax purposes, is subject to approval by regulators and Homestake stockholders. Holders of about 12 percent of Homestake's shares have agreed to vote for the deal, according to the companies' release. No approval by Barrick shareholders is required.

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