Greenspan hints something terrible is happening with derivatives


Placer's suitors turned off by problem mines

Globe and Mail, Toronto
Monday, November 18, 2002

TORONTO and VANCOUVER -- Placer Dome Inc. has
all the signs of a ripe takeover target.

The Vancouver-based company is the fifth-
ranked gold producer in a rapidly
consolidating field. It has been plagued by
costly mine writeoffs and shrinking
production forecasts, which remain a concern
despite its recent acquisition of Australian
gold producer AurionGold Ltd. Analysts
publicly fret about Placer Dome's scanty
long-term strategy. And during the past four
weeks, unusually heavy trading has goosed its
stock price by nearly 20 per cent amid a
swirl of acquisition rumours.

A classic prologue to a takeover?

Not necessarily.

People close to some of Placer Dome's would-
be suitors said the prospective buyers have
tossed around some ideas about acquiring
Placer Dome, including setting up a syndicate
of buyers to acquire the company. But huge
obstacles stand in the way.

They say the biggest hurdle is Placer Dome's
far-flung portfolio of 17 mines, some of
which are beset with declining reserves and
aging infrastructure, or are located in
countries where political stability is a

"There's probably only a few really good
assets in the company. If you can tell me how
I can acquire them without the rest, I would
be willing to listen," said an executive with
one of Placer Dome's larger rivals.

The fact that Placer Dome would not make an
easy or uncomplicated takeover target might
be scaring off potential acquisitors.

But it is also buying the company some badly
needed time to get its house in order and
bolster its global presence through

The task of convincing investors that the
company is on the right track falls to Jay
Taylor, appointed Placer Dome's chief
executive officer in 2000.

Mr. Taylor spent last week briefing U.S.
investors about the AurionGold acquisition,
and was not available for comment. But
sources close to the company said he is
characterizing the hard-fought deal as a
turning point for Placer Dome.

Building on the takeover and the recent rise
in its stock price, these sources said,
Placer Dome is seeking other acquisitions to
replenish annual gold production that is set
to decline sharply in the next few years.

"Jay Taylor would like to have some more
acquisitions under his belt because he knows
they have to have a long-term story in terms
of where their [future] production is going
to come from," said one person close to the

Some analysts say future production, a
pressing issue for all major gold miners, is
more severe for Placer Dome because its
pipeline of new projects is scant compared
with rivals such as Newmont Mining Corp. of
Denver, and Barrick Gold Corp. of Toronto.

There are also concerns about Placer Dome's
existing mines.

Some of the biggest questions focus on South
Deep. One of Placer's prime assets,
containing over 60 per cent of the firm's
current reserves, the South African property
was acquired in 1999, when Placer paid $252-
million (U.S.) to buy half of a joint venture
set up to run the mine.

Concerns include the technical challenges of
mining the site, and the political situation
in South Africa. In October, the South
African government announced a draft mining
charter that would see 26 per cent of the
country's mining industry transferred to
black-owned companies and groups within 10

When the draft charter was announced, Mr.
Taylor said Placer Dome had entered South
Africa knowing wealth distribution would take
place, and that although there would be costs
and benefits to the agreement, the company
did not expect the charter to hurt Placer
Dome's investment in South Deep over the long

But in an already risky business, some see
the uncertainty over South Deep as a strike
against the company.

South Africa is not the only area of concern.
Last July, power poles near Placer Dome's
Porgera mine in Papua New Guinea were cut
down. The company said the attacks were
vandalism related to political unrest in the
region and not directed at the mine. But the
attacks disrupted operations between August,
when the mine temporarily closed, and
October, when operations resumed.

Placer Dome has also come under fire for its
waste disposal methods at Porgera, where much
waste is discharged into a local river
system. The company maintains "riverine"
disposal was the best option for a
mountainous site prone to heavy rain and

Critics such as Ottawa-based Mining Watch
allege the method is illegal in most
developed countries and that it has led to
unacceptable levels of pollution.

Placer Dome has joined a group set up to
monitor the situation, and has set aside $3-
million to help with mine reclamation.

But the Porgera controversy -- like the
Marcopper Mining Corp. disaster in 1996 that
sent a torrent of mine waste from a mine
partly-owned by Placer Dome into the Boac
River in the Philippines -- has contributed
to a persistent image problem for Placer

And the biggest environmental challenges for
Placer Dome may be yet to come, as the
company begins to close mines that are at the
end of their productive lives and in many
cases, were built without the safeguards that
govern modern mine design. Other major gold
producers face the same challenge, but Placer
Dome has a string of potentially complex
closings coming up in the next few years,
said Catherine Coumans, research co-ordinator
at Mining Watch.

Ms. Coumans said closings typically cost more
and pose greater technical challenges than
companies expect.

For the moment, Placer Dome's stock price is
levitating, thanks to a flurry of takeover
rumours and renewed interest in the company
following the success of the AurionGold bid.

After slumping to $12.85 (Canadian) in mid-
October from a high this year of $22.20 in
May, Placer Dome's stock price climbed nearly
20 per cent over the past four weeks. The
jump occurred during unusually heavy trading
sessions that saw twice the average number of
shares change hands. In trading on the
Toronto Stock Exchange Friday, Placer Dome's
stock closed at $15.88, up 79 cents.

Placer spokeswoman Brenda Radies said the
firm does not comment on speculation.

Regardless of what is driving the recent
flurry of stock activity, the AurionGold deal
is widely seen as a critical step in the
company's efforts to remain a profitable,
independent producer.

The recent deal is particularly important
given Placer Dome's past missteps, including
last year's $292-million (U.S.) writedown on
its Nevada-based Getchell mine, billed as
"one of the most exciting exploration plays
in Nevada" when it was acquired in 1999.

People close to the company say any hint of
trouble with the AurionGold acquisition or
other mining properties could put downward
pressure on Placer Dome's stock price and
leave it vulnerable to a hostile takeover.

"The prospect of there being a merger-and-
acquisition transaction that is not of their
choosing is a very real possibility," one

Placer Dome's lost lustre

Placer Dome is one of the world's largest
gold miners, with operations in 14 countries.
But some of its key operations are hamstrung
by political, legal and production problems.

Gold reserves, proven and probable

2001 total ounces = 44.5 million

Australia: 4%
Chile: 2%
Papua New Guinea: 8%
Canada: 9%
United States: 12%
South Africa: 65%

Gold production

2001 total ounces = 2.75 million

South Africa: 6%
Chile: 2%
Australia: 13%
Papua New Guinea: 19%
Canada: 23%
United States: 37%