Japan considers ending currency intervention; U.S. Treasury won''t comment

Section:

If Newmont merged with Barrick ...
What-if scenario

David Berman
Financial Post (National Post), Canada
Thursday, March 11, 2004

http://www.canada.com/national/nationalpost/search/story.html?
id=b7430594-9455-4711-93d4-1743d65620f2

In a what-if scenario that could make gold bugs drool
with excitement, an analyst at National Bank Financial
has examined the consequences of a hypothetical
mega-merger between a U.S. behemoth and one of two
Canadian gold producers.

Tanya Jakusconek released a report this week that
looked at what would happen if Newmont Mining Corp.
of Denver acquired either Barrick Gold Corp. of Toronto
or Placer Dome Inc., based in Vancouver.

Ms. Jakusconek argues that a merger between Barrick
and Newmont would be the better pairing, creating the
world's largest gold producer based on annual
production, gold reserves and market capitalization.

According to the analyst, the amalgamated company
would have reserves of 177 million ounces and produce
more than 12 million ounces of gold annually.

More important, a Newmont-Barrick merger would
generate annual pre-tax savings of about US$300
million.

"In the mining industry, the majority of synergies
arise from savings in infrastructure, taxes,
administration, and exploration. The greater the
overlap in operations and operating jurisdictions, the
greater opportunity to realize on synergies," said Ms.
Jakusconek.

For example, Newmont currently spends about
US$16 million a year on exploration in Nevada while
Barrick spends US$17 million.

If the two companies merged, they could trim
US$7 million from the annual bill for that state alone,
she said.

The two companies also have similarities in terms of
geographical operations. Both companies have a focus
on North and South America, which represent the
majority of their reserves.

They also have significant operations in Australia and a
growing presence in Africa.

Placer Dome's operations are concentrated in South
Africa.

If Newmont acquired Placer Dome, the benefits wouldn't
be as attractive. Ms. Jakusconek estimates a
Newmont-Placer Dome pairing would generate annual
savings of US$85 million and produce 10 million ounces
of gold annually. The cost of producing each ounce of gold
would be US$215, versus costs of just
US$200 an ounce in the case of a merger with Barrick.

She notes that in either merger scenario, the amalgamated
company would have two years' of gold production hedged,
representing 10 percent of gold reserves. "Barrick's hedge
book would be more expensive to close out than Placer's,"
she said.

The shares of Barrick Gold, Canada's largest gold producer,
have been relative laggards even as the price of gold has
soared during the past two years. The company's former
CEO, Randall Oliphant, was dismissed from the company
in 2002.

In May 2003 AngloGold Ltd. and Ashanti Goldfields
Co. Ltd. announced a US$1.55 billion merger that will
create the world's largest gold mining company based on gold
reserves. The merger has led to some speculation over
whether the gold mining industry is due for another big deal
-- though the Newmont-Barrick proposal isn't currently
considered a strong possibility.

"It would be one of those proposals that would be
self-fulfilling in its nature. If they were to make a bid for
it, the gold price will go up. Therefore, both shares will go
up," said Douglas Pollitt, an analyst with Pollitt & Co. in
Toronto.

While a huge merger would be good for the gold industry,
Ms. Jakusconek recognizes a small downside to a merger
of this size. "Firstly, a merger of this type would create an
enormous company ... and would have a challenge
replacing, let along growing, reserves," she said.

"Secondly, it would result in goodwill which would have to be
booked on the balance sheet."

The shares of Barrick Gold closed yesterday at $27.88 on the
Toronto Stock Exchange, down 72 cents, or 2.52 percent.
Newmont's shares closed at US$42.33 on the New York Stock
Exchange, down US$1.12, or 2.58 percent.

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