Aug 19 - 25, 1996 Volume 82 Number 25 - 0 comments

STOCK MARKETS -- Toronto market has another quiet week

TEXT SIZE

The Toronto Stock Exchange traded lightly during the report period Aug. 7-13, and finished fractionally higher. The TSE 300 composite index rose 23.98 points to close at 5,048.24. Golds lost ground, and the metals and minerals stocks rose only slightly, trailing the market as a whole.
.
Takeover target Arequipa Resources was up 55 cents to $28.70. The company 's board advised shareholders to wait for further exploration results before accepting the Barrick offer of $27 per share.

Aug 26 - Sep 1, 1996 Volume 82 Number 26 - 0 comments

Barrick tops its own bid for Arequipa

TEXT SIZE

By: James Whyte

In a bid valued at more than $1 billion, Barrick Gold (ABX-T) has at last made an offer Arequipa Resources (AQP-T) could not refuse. Under the terms of the bid, Arequipa shareholders can receive either $30 per share or exchange an Arequipa share for 0.79 of a share in Barrick, plus 50 cents. Arequipa's board of directors has recommended the bid to shareholders, and several directors -- including Chairman David Lowell -- have signed an agreement with Barrick that obliges them to tender their shares. The lock-up agreement covers 23% of Arequipa's shares, including about 8% held by Lowell's family trust and another 10% held by Bickerstaf Holdings, a Hong Kong-based investment firm.
While Barrick's offer is made on the condition that at least half of Arequipa's shares must be tendered before its Aug. 27 deadline, the lock-up agreement puts the bid half-way there. The deal can only be broken if another bidder appears with an offer of more than $31.50 per share.
Arequipa's board agreed to the bid in mid-August after Barrick bumped its own offer by $3, and agreed to issue up to 14.4 million Barrick shares to the Arequipa shareholders who opted to take stock instead of cash. Barrick's first offer, which expired at 12:01 a.m. on Aug. 20, was a cash offer for $27 per share.
The share-trade provision made the deal for Barrick. "We fought for [the share component] very hard," says Catherine McLeod, president of Arequipa.
"We believed a lot of our shareholders had a low cost base and would appreciate not only the ability to roll shares over on a tax-free basis, but also the ability to participate."
Barrick Vice-president Vince Borg told a similar story. "When you're sitting there and you want to finish the deal, and they say they'd like to become Barrick shareholders, usually our response is that we welcome people who want to do that." He says Barrick had first hoped to succeed with a cash offer because it had a large line of credit and wanted to avoid diluting its own equity.
The share trade is a tax-free transaction in Canada, since it involves two Canadian-based companies. American shareholders of Arequipa do not get a tax advantage from taking shares. According to Borg, the arbitrageurs that moved into Arequipa when Barrick made its first bid will probably take cash. "They don't know much about Arequipa beyond its ticker symbol," he says.
Longer-term investors, who -- not coincidentally -- have a lower cost base than the arbitrageurs, would be more likely to take the share trade.
Arequipa's principal asset is the Pierina property in northern Peru, where the company has been drilling a gold prospect. Barrick management based its first bid on a resource of 5 million oz. gold there and said it was not considering the value of Arequipa's large package of exploration properties in Peru.
There is no formal estimate on the Pierina resource, and estimates on the backs of envelopes range from 3 million to 7.7 million oz., which suggests Barrick is willing to pay somewhere between US$97 and US$250 per oz. for gold in the ground. The big gold producer was also willing to bring a share component into the offer.
Arequipa's McLeod implied that other bids had surfaced and that these forced Barrick to make a pre-emptive offer. "We certainly had more than one very serious group out there," she says.
"Our technical people were studying the drill results through the whole period," says Borg. "They were becoming increasingly comfortable with their own interpretation of the results."
Barrick appears to want to develop a strong presence in Peru, and Arequipa management expects the major will move quickly on the Pierina project. "We've got a large portfolio in Peru, and Barrick, of any gold company in the world, has the muscle, financially, and the expertise to take that portfolio and fast track not only Pierina but some of the other exploration land we have." She hints that Barrick got value for its money. "It's a fantastic deposit.
The grade is terrific, it's still open, you can see the water lines and the power lines. Also, there is a town of 70,000 people, only 12 km away, which is linked to the Pan-American Highway by paved roads, and the deposit is only 5-6 hours away from Lima. For all those reasons, we wanted to continue to participate."