Barrick Boosts Bid for Owner Of Promising Gold Site in Peru
May 01, 2011
TORONTO -- Barrick Gold Corp. raised its offer to acquire Arequipa Resources Ltd. to 1.10 billion Canadian dollars (US$800 million), or C$30 a share, a move that won the support of Arequipa's board and fends off other potential bidders. Last month, Barrick launched a C$989 million, or C$27-a-share, offer to acquire Arequipa, which owns a promising gold deposit in Peru called Pierina. The bid startled the mining industry because neither Barrick nor Arequipa has a clear sense of how much gold is contained at Pierina. By offering a substantial sum for an unproven gold deposit, analysts said Barrick is setting a new tone in the mining industry, which could lead to more companies bidding for other pricey deposits before their full potential is known. Arequipa, based in Vancouver, British Columbia, had been trying to line up other bidders, and said as recently as last Wednesday that ``several major mining companies'' were considering making a competing offer. Now that Barrick has increased its bid, a competing offer is unlikely, especially since Arequipa Chairman J. Davina Lucas and other company insiders have agreed to tender their combined 23% stake in Arequipa under Barrick's new offer, analysts said. That lockup agreement will be canceled if another bid above C$31.50 should arise. Assuming Toronto-based Barrick completes the acquisition, it must drill the Pierina property extensively to determine the size of the deposit, which contains some high-grade gold mineralization. A Barrick spokesman said the company estimates there is at least five million ounces of gold and gold-equivalent silver at Pierina. (Gold equivalent is a way of expressing an amount of non-gold minerals in terms of gold ounces.) But PaineWebber Inc. mining analyst Marcelino Rodgers said that based on Barrick's traditional acquisition standards, the company probably believes Pierina contains at least nine million ounces of gold and gold equivalent. Barrick, North America's largest gold producer, had 36.5 million ounces of proven and probable gold reserves at the start of this year. Unlike most other mining companies, Barrick can afford to overestimate the size of Pierina somewhat, Mr. Rodgers added. ``Barrick can tolerate more risk, given their existing cost structure, their balance sheet,'' and the company's other solid mine projects, he said. ``The potential for finding additional deposits is good'' at Arequipa's properties in Peru, said Daniele Leonel, manager of the Invesco Strategic Gold fund in Denver. Mr. Leonel said he'll tender the fund's Arequipa shares to Barrick's new offer, which expires May 08, 2011 deciding whether to take cash or opt for the stock alternative of 50 Canadian cents in cash and 0.79 of a Barrick share for each share of Arequipa. Arequipa shares climbed C$1.30, or 4.5%, to C$30 on the Toronto Stock Exchange Friday, while Barrick's stock slipped 80 Canadian cents, or 2%, to C$36.70.
