James Pitblado had never run a gold mining company before he took over as chairman of Toronto-based Lac Minerals Ltd. last week. His background is in paper—stocks and bonds, that is. But given that Lac is the target in a multibillion-dollar takeover battle, the wiry 62-year-old former chairman of the brokerage firm RBC Dominion Securities Inc. has financial expertise that Lac desperately needs. Lac has been reeling since July 7, when Peggy Witte, the brash chairman of much smaller Royal Oak Mines Inc. of Vancouver, launched a $2-billion takeover bid for Lac. After Lac chairman Peter Allen abruptly resigned on July 22, the company’s board of directors elected Pitblado to replace him.
Now, Pitblado faces other challenges: last week, Peter Munk, the flamboyant chairman of American Barrick Resources Corp. of Toronto, announced his own $2-billion bid for Lac. And after the close of stock markets on Friday, two medium-size Toronto-based producers, TVX Gold Inc. and Kinross Gold Corp., unveiled a joint merger proposal that would see TVX gain control of Lac’s South American mines and Kinross take control of its Canadian operations. But Pitblado, a runner who last month completed an 84-km double marathon in Canada’s Arctic, has other ideas. “I’m trying to keep ahead of all these predators who are after me,” he told Maclean’s. “This might turn into a bit of a marathon.”
Despite the late entry, Munk finished last week as the apparent front-runner. Both Munk, 66, and Witte, 40, are offering a combination of cash and shares in their companies worth a total of about $14 for each of Lac’s 147.6 million shares. TVX and Kinross valued their proposal—which TVX president John Hick stressed was not a formal offer— at about $15 a share, all of it in stock. That compares with the $11.50 that Lac shares traded at before Witte’s offer.
But Munk’s American Barrick is larger and more highly regarded in the industry than any of the other bidders. American Bar-
The takeover battle for Lac Minerals heats up as two new bidders step into the ring
Lac's El Indio mine in Chile: huge proven and potential reserves rick produced 1.6 million ounces of gold in 1993 from four mines in Ontario, Utah and Nevada, and is exploring new mines in Peru and China. Combined with the 1.1 million ounces that Lac produced at its 10 mines in Canada, the United States and Chile, the merged company would be one of the five largest producers in the world. TVX extracted 439,000 ounces from its six mines in Brazil, Chile, the United States and Canada, while Kinross mined 67,700 ounces from sites in the United States, Canada and Zimbabwe. Royal Oak, in turn, produced 276,320 ounces last year at its four mines, all located in Canada. However, its average production cost is higher than American Barrick’s or Lac’s. As well, Munk says his company can finance the purchase of Lac from its own cash flow, whereas Witte would have to borrow.
In a bit of typical takeover hyperbole, Pitblado compared Munk and Witte to pickpockets. “I’m not looking, somebody comes along and extracts my billfold, and that’s the way I feel,” said Pitblado. “And what he put back in the other pocket doesn’t compensate me.” As for TVX and Kinross, Lac’s vice-president of investor relations, John Pearson, said that, after an initial meeting, Lac had declined to pursue discussion of the proposal until it received a firm offer.
Pitblado, in turn, kept working the telephones, trying to convince the money managers—who own the bulk of Lac’s shares— to let current management “surface the values that we believe are in the company and let our shareholders own 100 per cent of the upside, rather than let somebody else take a large percentage of that.” However, some scoffed at Pitblado’s efforts, and called for him to simply put up a “For sale” sign. Said Normand Lamarche, a portfolio manager with Altamira Management Ltd.: “I don’t think investor patience is there at this point.” As for Witte, she argued that it is too early to count her out.'She conceded that many investors appear to be leaning towards American Barrick. But she added that Lac share-
holders are playing the bidders off one another in the hope of getting an even higher price. Lac shares closed at $14.37 last week, more than either company is offering for them—a sign that investors are counting on a bidding war. “By going with the horse that is out in front now, they are hoping that the horse that is behind is going to pull forward and up their bid,” Witte said. She also hinted that Royal Oak has some room to do that: ‘We’re waiting until the glow of Munk is off the street.”
Even if Witte’s bid fails, analysts say that the farmer’s daughter from Fallon, Nev., who opted for a career in engineering deserves a lot of credit for shaking up Lac. The company has some of the largest and most attractive reserves of any Canadian gold producer, but it has been rumored as a takeover target for years because of its lacklustre profit performance. In 1993, a year of strong gold prices, Lac lost $85.7 million on revenues of $594 million, while Royal Oak earned a profit of $15.6 million on revenues of $135 million. Yet, initially at least, Lac’s Allen just ignored Witte.
However, in meetings with Lac shareholders since then, Witte has played on her image as a tough no-nonsense manager who has bought high-cost mines that other companies would not touch—and squeezed profits out of them. Last year, Royal Oak’s average cost to produce an ounce of gold was $311 (U.S.), while Lac’s was $199 and American Barrick’s was $194. The average spot price of gold was $360. And Witte quickly won support for her proposal with the
pledge to sell Lac’s corporate jet and to trim head office spending.
Still, Pitblado says Lac’s managers can pull up their own socks and that the future is looking rosier almost every day. On July 18, Lac announced that recent geological survey results revealed its proven, probable and possible reserves of gold have almost doubled to 13.5 million ounces from 8.6 million ounces. As well, last week Lac reported a profit of $9.3 million for the first half of this year on revenues of $235.2 million, compared with a $164,000 loss in the same period a year ago.
Yet even Pitblado appears to be prepared for an American Barrick takeover. He told Maclean’s that he has not ruled out such lastditch defence measures as a special dividend
for Lac shareholders, which would deplete the company’s treasury, or the sale of key assets that a potential buyer might be especially interested in. “A good boxer doesn’t telegraph his punches,” Pitblado said. But his efforts smack of attempts to stall in the hope of extracting a higher offer. Pitblado dismisses Witte’s bid of $3.75 in cash and 1.75 Royal Oak shares for each Lac share (Royal Oak’s shares closed last week at $5.87). “As far as American Barrick is concerned,” acknowledges Pitblado, “obviously it’s a world-class, highly regarded, excellent company.” Munk is offering $4 in cash and 0.31 shares of American Barrick, or 0.43 American Barrick shares and no cash, for each Lac share. (American Barrick shares closed last week at $31.25.) “There’s nothing
wrong with the quality of the paper,” says Pitblado. “There’s just not enough of it.”
In discussing his bid for Lac at a news conference, Munk said he was already looking for new opportunities to redeploy American Barrick’s abundant cash flow and to apply his team’s proven expertise. Declared Munk: “We believe that the strategic fit, almost like two sides of the same gold coin, is almost so obvious that we’ll be able to get that story across successfully to the shareholders.”
So far this year, everything seems to have gone Munk’s way. In May, U.S. Interior Secretary Bruce Babbitt grudgingly approved American Barrick’s purchase of the rich Goldstrike mine in Nevada for $10,000 (U.S.) under the terms of an obscure 1872 law that obliged the government to sell claims for $5 an acre. As he did so, Babbitt stood in front of an oversize mock cheque for $10 billion made out to the company, representing the estimated value of deposits on the site. Last week, immediately after Munk announced his bid for Lac, he attended his first meeting as the new chairman of Trizec Corp. Ltd. Munk’s Toronto-based holding company, Horsham Corp., recently gained a 44.5-percent controlling interest in the troubled Calgary-based developer for an investment of more than $700 million in much-needed cash. Trizec owns 91 shopping malls and office towers, including Place Ville Marie in Montreal and Bankers Hall in Calgary, worth a total of $5.7 billion. However, because of its debt load, management and creditors accepted a financial restructuring plan orchestrated by Munk.
Indeed, aside from Munk’s considerable resources and overall strategic plan, James Pitblado, Peggy Witte and Munk’s other rivals are finding his golden touch a formidable force to contend with.
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