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Barrick Gold braced for bid from Newmont

By Edward Simpkins
The Telegraph, London
Sunday, March 28, 2004

http://www.money.telegraph.co.uk/money/main.jhtml?
xml=/money/2004/03/28/cngold28.xml&menuId=242&sSheet=/money/2004/03/28
/ixfrontcity.html

Barrick Gold, the world's third biggest gold producer, is
on a high state of bid alert amid suggestions that Newmont,
the world's largest gold miner, is preparing to make a bid
for its smaller rival.

The two mining giants, worth 9.9 billion and 6.7 billion
respectively, are believed to have held informal discussions
on a merger in 1999. But the talks collapsed and instead
of a deal the two sides agreed a secret five-year standstill
arrangement. That agreement comes to an end within the
next few weeks.

At the time of the talks the two companies, which are both
listed in New York and Canada, were much closer in
valuation. The groups currently have gold reserves of similar
sizes but shares in Newmont have raced ahead over the past
five years following a number of large acquisitions.

In contrast, Barrick has been damaged by negative sentiment
toward its policy of hedging against falls in the gold price.

Combined, the two companies would form easily the world's
largest gold company based on annual production, gold
reserves, and market capitalisation.

The merged entity would have reserves of 177 million ounces
and pour more than 12 million ounces each year.

A merger would also lead to substantial cost savings. Earlier
this month analysts at National Bank Financial, the Canadian
bank, calculated that a merger between Newmont and Barrick
would generate annual pre-tax savings of about $300m
(166m).

Greg Wilkins, the chief executive of Barrick, was in London
last week meeting UK investors in the Canada-based mining
company. He said he believed his company is currently too
cheap and that he would resist a deal at today's valuation.

"As long as our share price is at the current valuation I would
have no interest in using our shares in a deal. If they want a
hostile bid they are going to have to recognise that our
shareholders will want a full price," Wilkins told The Sunday
Telegraph. "And that means we are going to strongly oppose
any hostile transaction."

Barrick claims that its hedging programme made it a large
profit during periods of weakness in the gold price. But it
accepts that if it had to wind up its hedge book today, the
company would make a loss of $1.6 billion.

"The hedge position has contributed over 2bn of cash flow
to the company. It is one of the main reasons why the
company balance sheet has been so strong while Newmont
had to raise $1 billion from shareholders when the gold price
was weak," Wilkins said.

Last year Barrick produced 5.5 million ounces of gold
compared with Newmont's 7.3 million ounces.

However, Wilkins is thought to have told investors that the
company is developing four major new mines that will see
production raised to 7 million ounces a year by 2007.

Newmont did not return calls last week.

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