Are gold and GATA on the wrong side of history?


Newmont-Battle Mountain deal
is piece in consolidation puzzle

By David McKay and Keith Damsell
June 21, 2000

AngloGold, Barrick, and Newmont are tipped to
accelerate the consolidation of the world's gold
industry, according to analysts in South Africa, the UK
and North America. This follows the second gold merger
in ten days with Newmont Mining swallowing rival Battle
Mountain Gold for $542 million in stock. Last week
South African company Gold Fields and Canadians Franco-
Nevada unveiled a $3.7 billion merger proposal.

"Consolidation will be fast and furious over the next
12 to 18-months," according to BoE Securities' Piet
Stoltz. One UK analyst says the majority of world gold
production will be concentrated in the hands of four or
five mega-gold producers within two years. Meanwhile,
Battle Mountain spokesman Les Van Dyke said gold price
weakness has precipitated consolidation: "That's the
the reality. It becomes more difficult for the smaller
players to attract market capitalisation," he said.

Newmont, North America's largest gold producer, and
troubled Battle Mountain of Houston agreed to merge
operations on June 21. Under the terms of the share-
swap, Battle Mountain's 230-million shares will be
exchanged for about 24-million Newmont shares. The deal
values Battle Mountain shares at $2.36 each, about 25
per cent more than its closing price a day earlier.

The expectation is that gold producers have a four-year
window to improve the gold price before the Washington
Agreement expires. In the agreement, major central
banks placed a moratorium on further gold sales. But
consolidation will create stronger balance sheets and
reduce the need for hedging. This is owing to the more
robust nature of the fewer but stronger gold companies.
A reduction in hedging is expected to lift the gold
price as supply into the market will be limited.

Gold Fields says that gold industry production is too
fragmented in comparison to other metals. There are 14
gold producers responsible for 40 per cent of gold
production in comparison to five zinc producers
responsible for 40 per cent of zinc production.
Furthermore, there are four copper companies and three
alumina producers which control supply in their
respective industries.

Structure of consolidation

Canadian analysts expect future deals to break down
along philosophical lines. One camp may comprise of
unhedged producers including the new Gold Fields
International, Newmont and Homestake Mining of San
Francisco. The second camp would be made up of the
forward-selling giants, including Toronto's Barrick,
Vancouver's Placer Dome and AngloGold.

Placer Dome is perhaps the most vulnerable of the
group. Expansion in South Africa and Nevada has drained
cash reserves and hammered the company's share price.
Newmont may represent the best fit. The Denver company
has a vast land position adjacent to Placer Dome's
Getchell mine in Nevada. A merger would cut Placer
Dome's costs at Getchell, including the need to
construct a $200-million mill.

However, a London-based analyst says there are no
foregone conclusions on possible mergers. The
significant premium at which Barrick trades is at odds
with the discount at which AngloGold trades and would
be a stumbling block to a merger of equals. In
addition, companies with hedge books may seek unhedged
producers such as Harmony Gold to minimise their risk.
The South African gold company is, in fact, viewed as a
target rather than an aggressor.

Details of Newmont-Battle Mountain deal

Access to Battle Mountain's lucrative Phoenix project,
a gold and copper deposit with 5.7-million ounces of
gold reserves, clinched Newmont's deal. Phoenix "is the
prime attraction for us," said Ronald Cambre, Newmont's
chief executive. The deposit would raise Newmont's
Nevada gold reserves by 20 percent to about 33.8-
million ounces from about 28.1-million. Phoenix is
expected to be in full production by 2003.

Analyst reaction was generally positive. Cash-strapped
Battle Mountain will finally secure the estimated $225
million to bring Phoenix into production and Newmont
will shore up dwindling reserves, said one Bay Street
analyst. "This pumps more life into the sector," the
analyst said. "It's another piece in the consolidation

But one Canadian gold producer said Newmont was
sacrificing its balance sheet for the sake of growth.
For a slim $30 million in annual savings, Newmont will
absorb Battle Mountain's $200 million in debt, the
industry rival said.