Barrick Gold Corp has agreed to buy Equinox Minerals for about C$7.3 billion ($7.68 billion), topping a bid from China's Minmetals Resources <1208.HK> in a big bet on soaring copper demand.
Already the world's largest gold miner, Barrick will double its position in copper with the acquisition. Prices for the industrial metal have risen more than sevenfold in the past eight years as supplies lag the growing needs of China and other developing economies.
Equinox, an Australian company listed in Toronto and Sydney, owns the Lumwana copper mine in the rich Zambian copper belt. It also owns most of the Jabal Sayid project in Saudi Arabia.
Toronto-based Barrick said on Monday it offered to buy Equinox for C$8.15 a share, an 8.7 percent premium over the company's Thursday closing price. Barrick said the deal was worth about C$7.3 billion, including warrants and options.
The all-cash bid is 16 percent higher than one from Minmetals, the Chinese metals powerhouse that made a bold, C$6.3 billion offer on April 3, underscoring the global race for resources.
Equinox called the C$7-a-share offer from Minmetals a low-ball bid and said on Monday it believes the Barrick bid is superior in terms of price and likelihood of completion.
Equinox shares jumped nearly 12 percent in Toronto, suggesting investors are expecting a counter-bid from the Chinese company.
I suspect that there is room on the upside for this, and the stock is trading at a premium to the bid, said John Ing, analyst at Maison Placements in Toronto.
In a world where commodities are trading at ever new highs, and you're looking at this project and the cash flow generated, the reality is today's prices may well be cheap in tomorrow's world, Ing said, referring to Equinox's Zambian project.
Barrick said its agreement for Equinox prevents the Australian miner from soliciting superior bids and gives Barrick the right to match any higher offers. Equinox would have to pay Barrick C$250 million to walk away from the deal, even if it accepts a higher bid.
Barrick Chief Executive Aaron Regent described the takeover bid as an opportunity to gain access to the rich Zambian copper belt at a time when copper prices are seen continuing their upward trajectory from already record levels.
Equinox's Lumwana copper and uranium mine is Africa's third-largest copper mine by production and the Jabal Sayid copper development is due to start production next year.
The acquisition of Equinox is expected to double our current production to around 600 million pounds, which would increase to over 700 million pounds with the expected completion of Jabal Sayid in late 2012, Regent told analysts on a conference call.
Barrick already owns the Zaldivar copper mine in northern Chile, the No. 1 copper producing country, so the acquisition of Equinox would provide it with access to two of the most prolific copper-producing regions of the world.
Directionally, I would say that most of the long-term copper price assumptions that are being used right now are understating what's going to happen, Regent said, declining to reveal his company's copper price forecast.
As part of the Barrick agreement, Equinox will pull its unsolicited bid for Lundin Mining . Equinox had been trying to take over the rival copper miner since February but conceded on Monday that its own shareholders would not likely have supported the deal.
U.S.-listed shares of Barrick slid 5.4 percent to $50.28 after the announcement.
Barrick said it has committed cash and financing in place for the transaction. It expects the deal to add to earnings per share and cash flow immediately.
Morgan Stanley and RBC Capital Markets advised Barrick on the deal, while CIBC World Markets, Goldman Sachs and TD Securities acted as financial advisers to Equinox.
(Additional reporting by Michael Erman and Julie Gordon; Editing by Frank McGurty)