FILED BY HOMESTAKE MINING
COMPANY PURSUANT TO RULE 425
UNDER THE SECURITIES ACT OF 1933
SUBJECT COMPANY: HOMESTAKE
MINING COMPANY
COMMISSION FILE NO: 1-8736
Merger Announcement CONFERENCE CALL
Barrick Gold Corporation
and
Homestake Mining Company
JUNE 25, 2001
Moderator
Ladies and gentlemen, thank you for standing by and welcome to
the Barrick Gold Corporation and Homestake Mining Company Merger
Announcement Conference Call.
During the presentation all participants will be in a "listen
only" mode. Afterwards you will be invited to participate in the Question
and Answer Session. At that time, if you have a question you will need to
press the "1" followed by the "4" on your telephone. And as a reminder,
this conference call is being recorded today, Monday, June 25, of the year
2001.
I would now like to turn the conference call over to Mr. Richard
Young, Vice President of Investor Relations, Barrick Gold. Please go ahead,
sir.
Mr. Richard Young, Vice President of Investor Relations of Barrick Gold
Good Morning, Ladies & Gentlemen. Thank you for joining our call
today. My name again is Richard Young. I'm Vice President of Investor
Relations here at Barrick and I'm joined by my counterpart at Homestake,
Igor Leventhal. And I'm sorry again for the delay, but we've got 500 people
already on the call and we've got another 200 who are trying to get on. But
thank you for joining us for this joint conference call between Barrick and
Homestake Mining.
During our call today you'll hear from Randall Oliphant,
President and Chief Executive Officer of Barrick and Jack Thompson,
Chairman and Chief Executive Officer of Homestake. They're joined by John
Carrington, Vice Chairman and Chief Operating Officer of Barrick, Patrick
Garver, Executive Vice President and General Counsel, and Jamie Sokowski,
Senior Vice President and Chief Financial Officer. They'll be pleased to
help answer any questions you might have.
Now I'll turn the session over to Randall.
Randall Oliphant, President and Chief Executive Officer of Barrick Gold
Well thank you very much, Richard. And good morning, ladies and
gentlemen.
Welcome to the quality chapter in the consolidation story. Jack,
I can't tell you how pleased I am to be with you this morning. Jack and I
see this as an historic phase for our company. As you probably know from
our press release this morning, we have reached a merger agreement that
will create a new industry leader in scale and quality. By combining our
strengths in this strategic merger, we are creating a company that is
expected to have the
industry's largest market capitalization, the highest earnings and cash
flow, the lowest costs and the strongest balance sheet, all of which will
help to place the company in an excellent position in our industry as it
continues to consolidate.
Before Jack and I talk further about the merits of the merger for
our shareholders, a few relevant details.
First, the terms. Under the agreement, Barrick is offering to
exchange .53 of the Barrick share for each Homestake share. This translates
into a value of US$8.71 for each Homestake share, which is a 31% premium
over Friday's closing price for Homestake or a 27% premium based on the
ten-day average.
I am pleased to note that Homestake's Board of Directors
unanimously approved the merger plan on Sunday, June 24, and is
recommending an acceptance by its shareholders. Already, Barrick has a
commitment agreement with certain shareholders and directors of Homestake
who hold approximately 12% of the Homestake's outstanding shares and have
agreed to vote in favor of the merger. The transaction is intended to be
cash-free for U.S. income tax purposes and is subject to regulatory and
majority Homestake shareholder approval. No approval by Barrick
shareholders is required. The transaction is planned to be treated as a
pooling of interests, accounting under US GAAP and is expected to close in
the fourth quarter of 2001.
As I said, this is a strategic merger consistent with Barrick's
built-to-last philosophy and entirely in keeping with the strategic
direction we've staked out for ourselves. At Homestake, we have a partner
that provides a good fit: strategically, philosophically, operationally and
financially. As Jack can tell you, Homestake is a strong company with a
great history. It's one of the oldest stocks on the New York Stock
Exchange, now in its 125th year of operation. Of course, it's one thing to
have an historic past, but it's even better to combine that with a strong
future with one of the youngest gold companies. What drew Barrick to
Homestake is the way that it has reinvented itself, retooled its operations
and made itself into a model low-cost producer with a long life, low-risk
asset base.
I know you have plenty of questions, but before we get into the
Q&A, I'd like to walk you through the reasons why Jack and I believe the
merger is a great fit for both companies and our shareholders.
First, for both companies, the transaction is financially
accretive that should result in significant cost-saving synergies for
approximately US$55 million a year after tax beginning in 2002. Second, the
quality and scale of this company will be apparent in its financial and
operating strengths and in our ability to undertake initiatives that will
achieve profitable growth.
Let me expand. In terms of financial strength, the merged company
is expected to have the highest earnings, cash flow and profit margins in
our industry, backed by the only A-rated balance sheet in the business, our
premium gold sales program that provided security during periods of local
crisis while maintaining complete flexibility to participate in higher spot
rates. With the inclusion of Homestake's 2 million ounce hedge position,
the merged entity will have its combined gold forward position totaling
18 million ounces at an average minimum
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price of $345 an ounce. This is equal to 22% of reserves providing a floor
price protection on approximately two thirds of production through 2003 or
50% of production through 2005. The combined position provides a
comfortable level of gold price protection for the merged entity and is
very much in line with the historic parameters of Barrick's hedge program.
From the point of view of the capital markets, the merged company
will have a market capitalization double the size of its nearest
competitor. On the operational side, here are the strengths that I see:
o based on 2000 proforma results, we are talking about a
combined company with total production of six million ounces
at a cash cost of $156 an ounce - the lowest in the industry;
o a reserve base of 79 million ounces, which are among the least
sensitive in the industry to lower prices;
o a low-cost, long-life asset base that is second largest in
terms of both reserves and production;
o The merger creates a company with low geopolitical risks.
Fifty-four percent of our reserves will be in North America
and Australia, with another 33% in South America. In addition
to becoming the largest gold producer in Canada and the United
States, we will become the second largest producer in
Australia.
Overall, given the snapshot that I've just provided I think you
can see why I believe this merger is a good deal for Barrick Gold
shareholders as it is for Homestake shareholders. But that's the story that
I know Jack is eager to tell you about. Jack?
Jack Thompson, Chairman and Chief Executive Officer of Homestake
Well, thanks, Randall. Let me tell you how pleased I am that our
two companies are joining forces. It's a bittersweet moment for us.
Homestake has a proud and historic past and history, but, you know, this
year the Homestake mines will closed. Homestake today has successfully
transformed itself into a competitive, low-cost gold producer with an
exciting future.
Having said that, our shareholders' future prospects are much
brighter with this combination, and let me tell you why. When Homestake
shareholders look at this merger, I know that they'll be pleased not only
with the 31% premium being offered and the tax-free treatment of the deal,
but the fact that this transaction is accretive to earnings, tax flow,
production and reserves per share. It enhances our operating and financial
strength by every measure.
Overall, this deal gives Homestake many more options: the wider
window of opportunity through which we can expand and do that by way of
organic growth, by giving the pipeline of projects that we have in the
company already, through selected property acquisitions and also through
industry consolidations. And we know the benefits that that prospect can
bring
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to disparate operations and companies are balanced. The combined company
will have significant financial muscle to undertake any profitable growth
both within and outside our private portfolios.
This has been a real challenge for Homestake on its own. Without
a doubt, Barrick is the perfect partner for Homestake, whether you look at
its established track record of creating shareholder value or a strong
position in the capital market, Barrick is a company positioned to prosper,
with operating and financial strengths that provide a downside of
protection with upside leverage. As a competitor, I have admired what I saw
when I looked at Barrick. As partners, I am confident that our combined
capabilities will make us the preeminent gold company. Randall?
Randall Oliphant, President and Chief Executive Officer of Barrick Gold
Well, thank you, Jack.
While we're talking about the factors that brought our two
companies together, I'd like to add into the equation an asset that you
won't find on our balance sheet. I'm talking about the cultural, the common
culture of our two companies. As you know, Barrick and Homestake have been
partners at Valadaro near our Vasqualama property. That joint venture gave
us a strong sense of the cultural compatibility between our companies. The
lean, entrepreneurial approach we share and the commitment to excellence
and efficiency at every property we operate. And as I told Jack, it's that
cultural compatibility that makes me confident we'll have a smooth,
seamless transition as we integrate our operations.
To ensure efficiency, we have formed a joint integration team.
Jack will join our Board of Directors and our first job is to effectively
integrate our organizations and management and realize the value of the
significant synergy. Obviously, we'll have to work out the details as time
goes on, but Jack will have a continuing role with our company and I intend
to recommend to our Board of Directors that he be appointed a Vice
Chairman.
Jack and I agree that the key to any successful merger is
creating a good strategic fit - cultural and financial fit, as well. One
that benefits the shareholders, employees and other constituents of both
companies. We believe we've got the capability for that kind of combination
in this merger. It's a combination that will create the only gold company
approaching the $10 billion dollar market cap mark, the clear leader in our
industry. After that, a solid commitment to social and environmental
responsibility that has opened doors to both Barrick and Homestake around
the world. A loyal, long-term shareholder base, first-rate management teams
focused on creating shareholder value, and liquidity that will place the
combined companies in the top one hundred of the S&P 500.
As you get a sense of the strengths that attracted Barrick to
Homestake and Homestake to Barrick. This is a great day for both Barrick
and Homestake. For all of our stakeholders it's a strong first step to a
kind of long-term, low-cost, strong growth company we believe will build
value, not just in a strong gold environment but in any environment we
encounter. That's the merger as Jack and I see it, and now we'd be pleased
to answer any of your questions.
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QUESTION AND ANSWER SESSION
Moderator
Ladies and Gentlemen, if you would like to join us to register a
question for today's Question and Answer Session, please press the "1"
followed by the "4" on your telephone. You will hear a three-tone prompt to
acknowledge your request. If your question has been answered and you wish
to withdraw your polling request, please do so by pressing the "1" followed
by the "3." If you are on a speakerphone, please pick up your handset
before entering your request. One moment please for your first question.
Your first question is from Robert Van Doren from LOM. Please
proceed with your question.
QUESTION
Yeah. Good morning, guys. Excellent move here. Two questions.
First one regarding the hedging and Randall you sort of tipped on it, but
also the merged entity would have the smallest of hedge position if as
percentage of reserves than the current Barrick position. The question
really is does it mean that you have to add to the hedge, or is it sort of
the hedging policy may be going to change.
ANSWER
Well, thank you for your question, Rob. Our hedge position on a
combined basis is actually at historic levels of where Barrick has been in
the past. For years we have been between 20% and 25% of our reserves hedged
and we're exactly in the middle of that with this transaction at 22%. We
think given the positive tone in the gold market, the fact that lease rates
are high, we're very comfortable with the position that we have today.
QUESTION
Alright. The second question, returning back to Chile and
Argentina, the Pasqua and the Veladero, now that you've got the two
products together, does that sort of increase the chance that the project
goes ahead, because in the past Randall, you've said that in this sort of
conditions it's actually makes better sense to buy projects than to develop
Pasqua, could that have been changed by this merger?
ANSWER
Well, I think it has certainly improved. Putting all the Pasqua
and Veladero and the 35 million ounces that is there under one roof. Will
certainly make it less expensive and more efficient to both build a project
and operate it. I think we see this as a way of not only creating cost, but
also because when you're not working between separate companies, it'll make
it a much more efficient process, and therefore actually improve the timing
of what we could do on our own. At this point what we're doing is really
taking a step back, look at it as a project, and figure out the best way to
develop it. We expect that the overall result will be much better than what
we could have done as two separate entities.
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QUESTION
And have you got any sense for a timetable as to when major
decisions are going to be made?
ANSWER
We're going to start exploring immediately the best way to do
this, as one big project.
QUESTION
Okay, many thanks.
ANSWER
Thank you, Rob.
MODERATOR
You're next question is from Daniel McCartney of Goldman Sachs.
Please proceed with your question.
QUESTION
A few questions. First, on the hedging side. The Australian
margins, right now, are very high because of the low Australian dollar.
Would you consider shifting some of your hedge book over to Australia,
Randall?
ANSWER
We haven't made plans of that nature at all. We're comfortable
with where the book is today. We think that we're well-positioned to have
confidence in what we're going to deliver. Some of our goals are actually
getting well-positioned for higher prices so we haven't even considered
moving it around.
QUESTION
The head office will stay in Toronto?
ANSWER
Yes.
QUESTION
Veladero, you did not have that reserves at year end, and Jack,
you did. I wonder, is this kind of a, would you view this as a vote of
confidence, Randall, in Veladero?
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ANSWER
Yeah, I think so, Dan. We've always believed that that district
has tremendous potential, and would produce a lot of gold to each of our
companies for a very long period of time at very low cost. I think by
putting this together, all that's going to do is improve the economics, and
therefore it should be a better project.
QUESTION
Last question. Just in terms of the time of the talks, how long
has this been going on or developing?
ANSWER
Dan this is Jack. It's interesting how well two highly motivated
companies can move what they have to move. I approached Randall about two
weeks ago on the subject.
MODERATOR
Next question is from John Burgess of JP Morgan. Please proceed
with your question.
QUESTION
Good afternoon. I was just wondering, there's a similarity here
between the well-timed date for Arequipa Resources and this bid just ahead
of the promised new information on the pre-feasibility study at Veladero.
Jack, I wonder if that information is still going to be available, and if
you've got anything to tell us on that.
ANSWER
Well, we had promised the market [that] we would give an update
with the second quarter results, but I think that we need to step back and
think about this new situation that the project finds itself in. I concur
with Randall's comments that it could only improve the project and make it
that much more economic, and likely to be built. So we're going to work
very hard, and we will obviously have to say something with our second
quarter results. I can't say right now what that would be.
MODERATOR
Your next question is from Mike DeRose of Morgan Stanley. Please
proceed with your question.
QUESTION
Hi, it's Mike. Congratulations, guys. First question is with
respect to the ballot sheet and the A credit rating. Is that something that
you've definitely, you're sure that you're going to maintain that A credit
rating?
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ANSWER
This transaction increases the financial strength of the company,
size, cash flow, liquidity, cash balances, so our view is that our credit
rating is actually strengthened considerably with this transaction.
QUESTION
Okay. Second question is with respect to composition of the
board. Could you just elaborate a little bit on how many members will part
of the board? You sort of indicated Randall that Jack will join as vice
chairmen. Is there anybody else from Homestake that will join?
ANSWER
Jack clearly will and what we'd like to do in the coming months
as we go to meet some of the Homestake directors, have them meet some of
our directors, and see if there's a basis to enlarge our board. Homestake
has some tremendous directors, and we'd like to get to know them a bit
better.
QUESTION
Okay. Just one more question. Could you kind of walk us through
the regulatory approvals that you're going to need over the next couple of
quarters?
ANSWER
Sure, Mike. Pat Garver will do that for you.
ANSWER
This is basically a transaction that needs to be approved from a
time efficient standpoint, so we'll go to, the United States will have to
get Hart Scott Rodino approval, and Canada will have to get Competition Act
approval. We also expect, as we would with any issuance of new shares,
we'll need the approval of the Toronto Stock Exchange. Those are the
principal approvals that are required.
MODERATOR
Your next question is from John Tumasso from Stanford Bernstein.
Please proceed with your question.
QUESTION
Good morning. Could you break down the $55 million of synergies,
specifically, between exploration, SG&A and taxes?
8
ANSWER
Sure John, it's Jamie. The $55 million is comprised of about $20
million toward administrative expenses, $20 million in tax, and $15 million
in exploration.
QUESTION
For some of us, taxes are a complicated and vague sort of topic
across countries. Should we assume that Barrick has profits in countries
where Homestake has expenses without profits, and that creates the tax
efficiency?
ANSWER
This transaction wasn't driven by tax considerations, but yes,
that's in fact the case. We feel that there is some synergy, just as you
mentioned, between taxes in different countries that both companies, by
combining, will be able to take advantage of.
QUESTION
Randall, if you could indulge me in this second question.
Assuming that the SEC does not approve a proxy in which one company calls a
property a reserve and another company does not, how would you present
Veladero as a reserve or a resource?
ANSWER
We need to prepare those materials, John, and I think we'll be
going forward with a common base.
QUESTION
So there'll be one position. It won't be the year-end 00
position, in which Homestake called it reserve and you called it resource?
ANSWER
No. It'll be a combined thing, where everything is treated
exactly the same.
QUESTION
And I presume that you're not answering the question directly
because you're waiting for the exploration data a month from now, which
will clarify things?
ANSWER
With more time, we'll have more information, and be able to make
a better decision.
9
QUESTION
Thank you and good luck.
MODERATOR
Your next question is from Richard Pombley of Pombley Capital.
Please proceed with your question.
QUESTION
Jack, traditionally the Homestake shareholders have wanted and
received a basically unhedged company as their investment vehicle. This was
lost in the merger, so how can this merger be in the best interests of
Homestake shareholders? And for Randall, on the current lease rates on gold
price, you say you're happy with the current hedge position. What if lease
rates on the gold price become more favorable for hedging? Will we see you
hedge more of Homestake's production?
ANSWER
Well, there's two questions there. I'll answer the first.
Richard, I'm a fairly large shareholder of Homestake firstly, as well. And
I look at our future, all the options are available for us. We can go at it
alone, that was clearly a strategy and one that we were pursuing, but when
you look at the company that we're creating, the company that is clearly
the leader in this sector, it already is, but more so, the most owned
stock, I don't see how anyone could, in fact everybody on our project team
is incredibly excited at how rich a company that's being created here. You
have to weigh all factors in the decision such as this and in our
estimation and that of the board and our prospects for the future look much
better as part of this company, and basically we're exchanging our paper
and creating an exciting vehicle that we're creating for people to invest
in this industry.
ANSWER
[to second question] Lease rates are high, but I think, given the
positive tone of the gold market being back to where we have been
historically, we've got a good position now. We're very comfortable with a
lot gold sold at a higher price than where we are today. Again, we've got
additional leverage over and above what we had before, so we're comfortable
with where we are today, and we don't have any plans to change.
ANSWER
Even when lease rates were higher in the past, we're still in the
20-25% range.
ANSWER
When lease rates were high, and also when lease rates were low,
this was a position that we've established with a percentage of our
reserves that our shareholders have grown accustomed to, and it was a
little bit higher than that before this transaction, that was
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largely done because we expected US interest rates to decline, and we
thought that lease rates would go up, and therefore added more to our
position at that time. But that leaves us in a position today where we're
absolutely comfortable with where we are.
QUESTION
Jack, has von Finck voted for this? Has he been quoted as part of
that 12%?
ANSWER
Yes.
QUESTION
Doesn't he himself own 12%?
ANSWER
Yes.
QUESTION
Thank you.
MODERATOR
Your next question is from David Malilieu from Scotia Capital.
Please proceed with your question.
QUESTION
Good morning, gentlemen. A couple of questions for you. With
regard to, following up on John's questions with regards to the $55 million
synergy. First of all, is that $55 million that's an ongoing annual
savings?
ANSWER
Yes, that's correct, David.
QUESTION
Okay, now with regards to going through the three items... for
expiration exploration, where are you actually going to make those savings,
given that, I think the exploration at Veladero is ongoing, and I think
Homestake just entered into a transaction in Australia that may require
some exploration funds also. Where, actually, will those come from?
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ANSWER
We're going to maintain the exploration program. Both companies
have some overlapping administration in their exploration, in South America
and in North America. So we're hoping that's not going to suffer, but what
we're going to reduce is where we've got duplication on the admin side.
QUESTION
Okay. And with regards to the tax benefits, how long will those
continue?
ANSWER
We feel that those are sustainable into the future. We've still
got some work to do to assess all of the tax synergies, but those synergies
result from different income levels and expense levels in countries that
are ongoing.
QUESTION
Can you give us an idea of how long the tax losses in the states
might be used against, for instance, the gold strength, etc.?
ANSWER
We feel that they are along term and I would project those to
occur well into the future. Again, it's still preliminary, so I can't give
you an exact date, but we feel that those can go on well into the future.
QUESTION
Would it be incorrect to suggest that perhaps to 2010?
ANSWER
That would not be incorrect at all to assume that.
QUESTION
With regards to Pasqua, this has been asked before, let me just
try it a different way, with regards to it being deferred as a singleton
deposit as it stands, you've mentioned that perhaps you'd be looking at it
as a unified mine. What might, apart from the road and the hydro
[unintelligible], et cetera, what might you also be looking at with regards
to getting these things to act as one individual mine or processing?
ANSWER
I'll take a crack at that. This is Jack. It's truly difficult for
us at this point to try to guess what that is. Think about the fact that we
only one administration, one procurement
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department, one transportation department, one camp. Some of that we might
have captured anyway, as partners and neighbors, but clearly it's a lot
easier and much more likely those kinds of cost savings bolster the
capital. Now, on the operating side going forward, are going to be
captured.
QUESTION
Right. So from the perspective of G&A purchasing, etc., I mean,
there are some opposite synergies there, but with regards to the actual
operation of it, it still pretty well is individual deposits, right?
Individual mines?
ANSWER
I think we really need to look at that over the next comfort zone
before we really comment on that. I mean, we did start this whole process
two weeks ago.
QUESTION
Right. And just for information, Jack, the Homestake exploration
geologists have been seconded to Barrick, is that correct? Or Veladero?
ANSWER
It's the other way around.
QUESTION
Okay. And how many guys have been seconded, and how long have
they been in the Homestake camp?
ANSWER
I don't have a clue.
QUESTION
O.K. But there's enough time that everybody knew each other
pretty well?
ANSWER
I'm not sure that it was just geologists, I think there were some
engineers that were working at the project. There was a lot of cooperation.
This is a partnership, and a joint venture. So we had [unintelligible] from
both companies.
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ANSWER
David, it's Randall... If I could just add to the synergy
question. Barrick, of course, as you know, some very probable gold strike
property that Homestake brings some losses [unintelligible], and you can
see just how long the life of a Goldstrike is, and how long those will be
useful. The other thing that's quite important, is the Canadian situation,
where Homestake has very low cost and highly profitable Canadian
operations, and Barrick has all of its head office expenses in Canada. So
that's why we believe that those things will continue to go on a tax side.
The administrative and exploration duplications, that will go on forever. I
think that our synergy number will probably grow over time, as we realize
more cost savings through Pascua, [unintelligible] and Veladero.
QUESTION
That's a good point. On that very subject, then, on the G&A from
the head office perspective, how much of that G&A on the income statement
is exactly head office then? If you can put it against the Henlo
operations?
ANSWER
The combination of a number of offices... we'll be assessing that
going through the future. But it's a combination of various offices, and
we'll be -- we will ensure that we actually take all of the best assets of
people in the combined company.
MODERATOR
Your next question is from Hathan Holly of Salamon Brothers.
Please proceed with your question.
QUESTION
Good morning, gentlemen. Again, a good transaction question for
the new company. Has there been an announcement to determine what type of
an effective tax rate the company would hold going forward?
ANSWER
We're still working through that. I think the tax rate will be
very similar to a combination of the two companies' existing tax rates on a
pro rata basis, less the synergies that we talked about.
QUESTION
Another question with regard to some of the assets that are
present in Homestake at this stage. There are some interests in Canada, as
well as the US and Australia, which only minority interests or 50%
interests are held, as well as some, if I recall correctly, there was some
oil and gas assets as well, as well as some sulfur assets within Homestake.
I'm not sure if those are still there, but there were in the past. What are
the plans for those assets in particular?
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ANSWER
Would you please repeat the question?
QUESTION
Sure. With regard to some of the minority assets, minority
interests and assets within Homestake, such as in the past [unintelligible]
had some interests in some oil assets and some sulfur assets, what's
happening with those, and what would happen in the new company?
ANSWER
We are totally not into sulfur at all, with no residual interests
and liabilities.
QUESTION
Okay, and with regard to some of the hemlo assets, etc., where
you've got 50% interest, Randall, I guess, what would be your strategy
going forward there?
ANSWER
Our strategy would be, the good low cost mines that make the big
contributions, and that we can shelter some of that income. So we're glad
to have them as part of our company. They're very, similar to Bousquet and
Holt-McDermott so I think we'll have a good collection of Canadian assets,
which are low cost.
QUESTION
Thank you, gentlemen.
MODERATOR
Your next question is from Drew Victor of Titoman Investment
Group. Please proceed with your question.
QUESTION
It's actually Rusty [unintelligible]. Congratulations on the
transaction. A couple of quick questions. If, for some reason, the
exploration data that you guys are expecting from Veladero comes in as not
what you guys originally expected, is that excluded at all from the
material adverse clause in the transaction, and I have a follow-up.
ANSWER
No, the material adverse clause in the transaction doesn't
envision that the Veladero exploration results will have any bearing on it
whatsoever.
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QUESTION
Is there any protection regarding political risk in Argentina?
ANSWER
No.
QUESTION
So what is the break up fee for the transaction?
ANSWER
The break up fee for the transaction is roughly $80 million.
QUESTION
Thank you very much.
MODERATOR
Your next question is from Bill Reed of Merrill Lynch. Please
proceed with your question.
QUESTION
Yes, just a follow up on the ratings agency question earlier. I
would agree that the A3A ratings should be maintained, but I was just
curious if you had any preliminary conversations with the rating agencies
at this point? And do you expect watch listings, or affirmations?
ANSWER
We have had conversations with both S&P and Moody's, Bill, and
they're looking through the information. You can appreciate this
transaction was just finalized yesterday, so we don't expect any type of
watch or any implications from it. They haven't gotten back to us on that.
QUESTION
Thank you.
MODERATOR
Your next question is from Mike Cochran of Scotia Capital. Please
proceed with your question.
16
QUESTION
This is [unintelligible]. I wanted to ask you about the timing of
the transaction. You've pulled it together over the course of the last two
weeks. Is that because you wanted to get a pooling condition?
ANSWER
Well, I don't think it's any coincidence. It's an opportunity to
do one last pooling transaction. It may have been the motivation to make
that call to Randall, but, I can tell you, that the more we studied each
other, the more evidence there was that we're creating something special
here.
QUESTION
Is pooling a preference or is it an achial condition of the
transaction?
ANSWER
We have to be satisfied in the end. The two companies have to be
satisfied in the end that the merger will qualify for pooling of interest
accounting treatment under US GAAP so, it's a condition.
QUESTION
Okay. One last question. Can you give us a sense of why you're
thinking the transaction will take until the fourth quarter?
ANSWER
This is a transaction which, as I mentioned earlier, requires
both Hart Scott Rodino and Competition Act approval, and the joint
registration and proxy statement will have to undergo reviewed by the SEC.
We expect that that will all be accomplished in the ordinary courts, and we
don't really foresee any problem. But the expectation is that that's three
or four months' process. Anyways and that will take us into the fourth
quarter.
QUESTION
Thank you very much.
MODERATOR
Your next question is from Brian Christie of Canacord Capital.
Please proceed with your question.
QUESTION
Good morning, gentlemen. I just wanted to know if there's any
outstanding costs related to the closure of the Homestake mine, and are
there any ongoing costs on a go-forward basis with that project?
ANSWER
The mine is still in operation today. It will be through the end
of this year. It is having a very good run so far this year, compared to
budget and beyond expectations. The plan is that by the end of this year,
we'll be closed. We have begun as much work as we can do while it's still
operating. Primarily, closure of numerous tunnels and annexes that exist in
the hills there on our property, that work is ongoing, and some other
surface stuff that we could do. But the bulk of the work really can't begin
until the mine is closed. We have an estimate, the whole program, would be
$66 million, and that it will take about five or six years for the bulk of
it to be spent.
QUESTION
Thank you.
MODERATOR
Your next question is from Victor Flores of HSBC. Please proceed
with your question.
17
QUESTION
Good morning, Jack Randall. I was wondering if perhaps you could
spend a couple of moments talking about some of the rate of return criteria
that were employed to come up with the ratio in the transaction.
ANSWER
Victor, maybe I could tell you how I looked at this. When we
looked at Homestake, we saw a company that would produce about 2 million
ounces of gold a year, at similar low cost of what Barrick has today. From
a Barrick shareholder perspective, this is more Barrick. We have increased
our shares outstanding by about 35% but we get 50% more production at a
similar cost from where we are today. At the same time, Homestake's
principal growth project with the Veladero property which, as you know, we
have an interest in, it's right next to Pasqua Ammond. That's why the
deeper we dug into this the more similarity we saw between the two
companies and the more opportunities to realize synergy. Exactly what this
is a Barrick shareholder getting more Barrick in terms of more and low cost
production, the same development project that we had before, but at the
same time, improving its geopolitical risk profile, increasing its tax
balance and increasing the number of opportunities with the combined
companies to take advantage of as we look at things in less desirable parts
of the world. So I think from our shareholder's perspective its just a
Barrick as people have come to know it only bigger having more
opportunities available to it and being stronger.
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QUESTION
Thank you, Randall.
MODERATOR
Your next question is from Joseph Sheer of TD Securities. Please
proceed with your question.
QUESTION
Yes, hi, it's Joe Sheer of Toronto Dominion. Congratulations,
guys it looks like an interesting deal. I've got three quick questions.
Number one, Homestake is traditionally, as has been mentioned, a
non hedger and clearly to bring yourselves up to the combined hedge ratio
of between 20 and 25 percent; we need to shorten some goals. What is the
time horizon on that is the first question.
Second question is any environmental price approvals specific to
the transaction? And the last question is "are there any break prices
related to either the price of ABX shares or the price of gold that would
cause a grounds for termination of the agreement?"
ANSWER
In terms of hedging, I think that perhaps something perhaps
hasn't been made clear. We said that Barrick traditionally has been hedged
between 20 and 25 percent. Pro forma basis when we put together these two
companies we're exactly in the middle of that at 22%. I'm very comfortable
with that position. So I think you may have misunderstood some of the ways
that we described where we would be on a going forward basis.
QUESTION
Well, I don't understand how that could be. I mean if Barrick has
always been hedged between 20 and 25% and Homestake has not been hedged at
all, how could the combined entities be hedged in that band?
ANSWER
Well, I can help with that. This is Jack. Homestake actually has
been hedging, has been slowly building a hedge book and we're contributing
a couple million ounces of hedge, ounces of contract, through the combined
venture. Homestake was at about [unintelligible] healthy 12 or 15 percent
of our reserve, hedged about 3% but reproduction was much higher.
QUESTION
Got it, okay that clarifies that. And the other two questions,
please? Environmental approvals and break prices based on ABX share price
or the price of gold?
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ANSWER
This is Patrick. There are no environmental approvals that we're
aware that are necessary for the completion of the transaction. With
respect to conditions relating to either price of Barrick shares or the
price of gold there aren't conditions relating to either of those. This is
a fixed exchange ratio deal with no collar, and, we're both at risk to
increases or decreases from the price of gold.
QUESTION
Fair enough. So basically all we have to worry about is the
material adverse development clause, for the most part. Is that correct?
ANSWER
There certainly is a material adverse development clause in the
merger agreement.
QUESTION
And how is the material defined, or is it defined?
ANSWER
All of this information will be available in what we file and
will be available shortly.
QUESTION
That will be on an 8-K sometime in the next week or so?
ANSWER
Well, it won't be the next week or so, it will be you know a
joint proxy and F-4 filing and I expect that will take maybe three weeks to
complete before its on the street.
QUESTION
Right, so you don't anticipate filing an 8-K with the merger
agreement prior to the F4?
ANSWER
We may have to do that - (noise)
QUESTION
I'm sorry?
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ANSWER
But we may have to do that.
QUESTION
Okay, that's -- I think you may, but we'll see. Okay, thank you
very much, gentlemen.
MODERATOR
Your next question is from Tom Talbot of Capital Securities.
Please proceed with your question.
QUESTION
Hello, hey hello, can you hear me?
ANSWER
Yes we can.
QUESTION
I had a question and I know there's been talk of hedging, I have
some clients who have problems, take mining and we looked at it as a non
hedge position you know for an increase in the price of gold but in terms
of the hedging, I know there's hedging in terms of selling forward
contracts, but there's also sales of options and I know you do that. Is
there...and some people will anticipate that the price of gold, there's
been a lot of hedging, and then it's possible that at some times there
could of the type of price rise that can be very dramatic or fast,
something like what happened in 1999, maybe, more, is there a risk in the
hedge book or is this sufficient reserve to strike if there's no
circumstance or event under which a quick or sharp or sudden rise or rise
where everybody's covering could be a negative for the companies?
ANSWER
It's Jamie. There is absolutely no margining in our agreements,
we have fifteen year lines, the positions will be combined, there is no
impact at all of a sharp rise in the gold price on a position or any
arrangement that we have.
QUESTION
So there's no risk to the companies, say something, goes, some
traumatic event and gold rose a hundred dollars, the company, in one day or
something, there would be no risk in that?
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ANSWER
That's exactly right, there is absolutely no risk.
QUESTION
Okay, great good okay thank you.
MODERATOR
Your next question is from Jeff Stanley of BM All Nesbitt Burns.
Please proceed with your question.
QUESTION
Morning gentlemen. Just a couple of questions. Most of mine have
been have been asked. Could you detail for us the acquisition cost, what
sort of charge you expect to take in the P&L as a result of the various
fees, etc. and what uh, where obviously there's been a lot of discussion on
the hedge book and you know we're all aware of the position there but I was
wondering if, you know, you've characterized it as perhaps two thirds of
production until 2003 or 50% through 2005, is that actually the way you
intend to deliver it or are you leaving yourselves open with flexibility to
reduce your position by delivering more rapidly or vice versa, how do you
actually see it unfolding?
ANSWER
As far as the acquisition charge, that type of information will
come out with our proper filing. On the hedge book, as Randall I mentioned
we're very comfortable with the position, the combined position, of the two
companies. This is right in line with where we've been historically, and
going forward given the positive sentiment in the market, where contangos
are, the increased leverage that to gold price, that the combination of the
companies provide, we're very comfortable going forward with the levels
that indicate that we have one third of our position unhedged for the next
three years and even less going forward.
QUESTION
Thanks very much.
ANSWER
You're welcome.
MODERATOR
Your next question is a follow-up question from Mike Trolls of
Morgan Stanley. Please proceed with your question.
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QUESTION
Just a couple of real quick questions, just wondering with
respect to due diligence, have you gone through all the due diligence from
the Barrick perspective given that the deal was only started two weeks ago?
Number two, could you maybe just walk through some of the things
that would trigger the break up? See, I mean, would it be like a counter
bid from another company, or just walk us through some of that. And I'll
just wait for your answers.
ANSWER
Mike, it's John. In terms of the due diligence, we've had a
pretty close look at everything and had a detailed look at over 75% of the
reserve base, and the other portions we're quite comfortable with also, so
we're satisfied on the due diligence side.
ANSWER
On the break up fee, it's really just the normal deal
protections, mechanisms, and there would have to be a competing bid that's
accepted by the company before the break up fee would become payable.
QUESTION
Okay, and just one more question, Randall, given your company's
going to have 900 million dollars in cash and generate a lot of free cash
flow, etc. what about your dividend policy, are you going to sort of
maintain the 1.4, 1.5% S&P average, or will you look at doing something
like your competitor, Angle Gold Dust, giving a 5% dividend yield at term
prices?
ANSWER
We don't see the need to change our dividend policy, it's been
strong and consistent for a long period of time, but we will have lots of
time and we also see lots of opportunities ahead of us both in terms of the
asset base and the properties that we bought today but we also things that
may come down the road, so uh, no, our approach remains the same as before
which has consistently paid dividends in that range, and to be well
positioned to a feast of opportunities to build our mines in the time
frame.
QUESTION
Okay, thanks a lot, congratulations.
MODERATOR
Your next question is from Barry Cooper of CIBC World Markets,
please proceed with your question.
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QUESTION
Hi, good morning, just a few quick ones and then maybe a littler
lengthier one. Who's acting for both parties on this deal?
ANSWER
For Homestake it's Warburg's Bill McGooty, and UBS Warburg's
[unintelligible]. And Cravath Swain is the legal firm.
ANSWER
And for Barrick it's RBC Dominian Securities and CFS Elite. And
on the legal side it's the Davies firm here in Toronto and Shearman &
Sterling in New York.
QUESTION
Okay. Jamie, in terms of the annual savings of 55 billion you say
if that's after tax, what tax rate did you use to get to that figure?
ANSWER
We used the tax rate of 20%.
QUESTION
OK. Good. Couple of other things here. Jamie, can you just
elaborate maybe touch on what changes there will be under US GAAP other
than obviously your total costs will drop?
ANSWER
Barry, the changes under US GAAP are not material to the company,
there are, the differences really relate to the pooling of interest and
going forward we're going to be able to realize some additional benefits in
terms of total costs, reflecting the proxy, we're carrying assets on our
books under US GAAP at a lower cost. We'll get some additional advantages
on our depreciation going forward under US GAAP. There's some other minor
differences that it gives, but all in all they really are not material
differences between Canadian GAAP.
QUESTION
Okay, I was wondering if you'd had a chance to review, Randall,
in that lawsuit against the company, and what your views were on it.
ANSWER
Perhaps I can answer it. This is Patrick. We have had an
opportunity to review the lawsuit, of course it's something pending before
the courts and its not the kind of thing that we would ordinarily comment
on, but we're familiar with the case.
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QUESTION
And you're satisfied with the risk reward ratio?
ANSWER
We're satisfied with the risk reward ratio of this transaction.
QUESTION
Okay, final question, then. We've been looking for consolidation
within the industry for quite some time and clearly this is a consolidating
transaction, the next thing I guess some of us are looking for is sort of a
rationalization of operations, is there any plan for closure of some of the
operations at this time?
ANSWER
Excuse me, there are - I think both of our companies and I figure
you'll see from our cost profile, have closed our higher cost operations or
they are currently in closure. We'll continue to look for opportunities to
make more money in our industry, but I think clearly we were both leaders
at cutting down the higher cost stuff.
ANSWER
I should just point out that we do have, I mentioned the closure
of the Homestake mines. The Lava mines will also close next year, and Ruby
Hill at the end of next year and, how we're going to follow that is down in
Chile, so hope things would actually further reduce the production in 2002
by 300,000 ounces or so, that is already planned and in well indicated
vindicated to the market.
QUESTION
Okay, thanks a lot gentlemen.
ANSWER
Thanks, Barry.
MODERATOR
Your next question is from Carey Smith of Haywood Securities.
Please proceed with your question.
QUESTION
Good morning, just a couple of things. The current mark to market
of the hedge book pro forma--Can you give us a rough idea as to what that
would be at today's gold price, Jaime?
25
ANSWER
The current mark to market of the hedge book is about $450
million, at today's gold price.
QUESTION
And that's Pro forma, right?
ANSWER
Yes.
QUESTION
And the second question I had--Mr. Von Finck, has he signed any
sort of an irrevocable lock up? Or, what is the basis of his lock up?
ANSWER
I don't think it's appropriate for me to talk about that-maybe
because I'm not familiar...So, I think that's about all I can say on that.
QUESTION
O.K., but he has agreed to tender to this transaction as it's
constituted?
ANSWER
Yes.
QUESTION
Can you talk briefly about the management team in the new
company? I guess you're talking about saving $20 million (US) of G&A The
combined G&A for the two companies, I guess, is around $80 million (US). I
just wonder if you could give us some idea as to who, potentially, would be
the senior management team; how many people would be coming from Homestake,
and from Barrick, or have you thought through that yet?
ANSWER
Well, Carey, this is something that Jack and I and others need to
work on in terms of integrating the company, I think. You know, Homestake
has a tremendous management team. We think very highly of the Barrick team
that we have as well. We think that by selecting the best of the best,
we're going to be able to have the best team in the business. This is
preliminary. We've got months to sort this out, and this is something that
Jack and I and others are going to get on with forthwith.
26
QUESTION
O.K. And is it safe to assume that the combined G&A in the pro
forma company would be around $60 million US annually, then?
ANSWER
Based on R & A the reduction, yes.
QUESTION
O.K., thanks very much.
MODERATOR
Your next question is from Tanya Tekusknecht of National Bank
Financial. Please proceed with your question.
QUESTION
Hi. I've just got a question about Barrick, do they own any
shares directly in Homestake?
ANSWER
No.
QUESTION
No? And, just on the hedge book, for Jamie...I guess the mark to
market of the pro forma hedge book has fallen by some, what?, $200 million,
since 1st quarter. What would be the break-even gold price, then, required
on that hedge book?
ANSWER
The break-even gold price on the hedge book would be almost $300,
Tanya.
QUESTION
O.K. Just one last question, Jaime: On the statement that this is
going to be the strongest earnings in the gold industry, if I look at my
earnings from Barrick and my earnings from Homestake and I've put in 55
million in savings on a per share basis, I don't have it as being accretice
unless I'm going under U.S. GAAP where I remove the [unintelligible] $28
per ounce of acquisition costs...is that a fair statement?
27
ANSWER
This transaction is mildly accretive, Tanya. We have the
synergies, as you mentioned, the US GAAP benefits. We're comfortable that
we're going to be able to generate those synergies, and Randall and Jack
have mentioned a lot of the other benefits of this transaction. But, your
numbers are fairly in the ballpark.
QUESTION
O.K. Thank you very much.
MODERATOR
The next question is from Bill Bird, a private investor. Please
proceed with your question.
QUESTION
With the gold hedging programs that we've had in place in the
past, hasn't that had the effect of keeping the price of gold down? And if
we stopped the hedging wouldn't it possibly push the price up and help the
price of their gold stock?
ANSWER
Our hedging position has remained relatively constant over the
years, and we're, basically, as we add to the position, we're delivering,
we're just replacing the ounces that we would be selling into the market
anyway, so we feel that our hedge program is not destructive to the gold
price. If hedge positions were reduced, that may have some impact, positive
impact on the gold price, but it's not clear as to how much it is really
impacting, going forward.
MODERATOR
Did they answer your question?
QUESTION
I think they should hedge more and stop the hedging, but, no, no
more questions.
MODERATOR
The next question is from Leonard [unintelligible], a private investor.
Please proceed with your question.
QUESTION
Yes, what effect will this have on EPS for 01 and 02?
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ANSWER
This transaction in 01 because of the fact that we will begin to
report once this transaction is finalized under US GAAP This will be
diluted to earnings in 01as a result of transaction costs. In 02 this is
mildly accretive.
QUESTION
Thank you.
MODERATOR
Your next question is from Ceasar Brian of Debelli Asset
Management. Please proceed with your question.
QUESTION
Hi, my question is about the hedging, but most of it has been
answered. I have one question, maybe for Jack Thompson. In the annual
report for December 2000, Homestake hedged approximately 8% of its proven
and probable reserves. You said now it's 13. Was there any change in your
thinking over the last few months about this?
ANSWER
No, not a change in thinking. We have, I think, been very open
with the market that we've been adding positions in Australia capture the
margins that we have from our [unintelligible] in Australia. The fact that
we have been winding down our foreign exchange hedge book so it's kind of
tied to that currency issue and I think we've signaled that for the
[untelligible] over the past few months.
QUESTION
Maybe it was mentioned before, but if the pro forma hedge book is
about 22 %, what is Barrick's now?
ANSWER
27%.
QUESTION
Thanks.
MODERATOR
The next question is from David Davenport of Morgan Stanley.
Please proceed with your question.
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QUESTION
Morning gentleman. Someone made the statement that there is
absolutely no risk to the company in the event of a dramatic rise in the
price of gold. I want to make sure that I heard that right, and also give
you an opportunity to give that statement a little more definition, given
what happened to some other gold hedgers in the past. Also, I'd like the
name of the person who said that there's absolutely no risk to the company
if you remember who said it.
ANSWER
David, its Jamie Sokalsky. I made that statement. And its true.
Under our trading agreement there are no margin requirements. There are no
arrangements that would impact any type of covenant that we have in these
trading agreements if the gold price went up. And in 1999, when we saw the
price spike, and a number of other companies got into trouble, it was a
good test of how secure and how strong our trading agreements are.
Ultimately, we are able to deliver our gold into those trading agreements,
arrangement. There are no credit restrictions whatsoever in terms of a
price spike.
QUESTION
Okay. About a year and a half ago, I think it was Randall Olifant
that went public with Barrick's decision to, as I recall, greatly reduce
the hedging activities of the firm, or at least somehow cover those hedges.
Is that still in effect or has the company's attitude towards hedging
reverted to the higher hedge position that had existed prior to that?
ANSWER
What we had done was purchase call options in order to be able to
participate earlier in a rallying gold price to have an earlier impact on
our earnings and cash flow. We maintained the minimum floor plan protection
that we've always had, but by buying these call options we were able to
free up the outside earlier. Some of those call options have in fact
expired. They were expired totally by the end of 2001. And we'll assess
what we do with the hedge position going forward.
QUESTION
I see. Well thank you very much.
ANSWER
Thank you. Operator, I apologize Mr. Thompson and I have to leave
shortly to go to a press conference. But we'd like to answer two more
questions.
MODERATOR
Certainly. Your next question is from Terry Orslin of TSO One
Associates. Please proceed with the question.
30
QUESTION
Thank you. Jamie, with respect to the synergy, and I'll come back
to the other question, once the deal goes through, what's the cost of
[unintelligible] position of [unintelligible] the synergies. Is it one time
[unintelligible] do you expect to foresee the costs?
ANSWER
It's still a little early to actually to quantify that, Terry, so
under US GAAP we will need to expense that this year. But it's too early to
give you those figures.
QUESTION
Okay. Jack, coming back to you, did you have any other discussion
with anybody else before Barricks of Martino Consultants?
ANSWER
Well, uh, if there has been or we did, I'm sure I would not have
been able to tell you one way or the other, its inappropriate for me to
discuss what might or might not have led to this I think the real focus is
the fact that when we did talk, it became very clear very quickly that this
combination creates a rather special company. And that's our focus, to get
this deal done.
QUESTION
Fair enough. Thank you.
MODERATOR
Your next question is the follow-up question from Daniel McConkey
of Goldman Sachs. Please proceed with your question.
QUESTION
Well, this is kind of a comment, Jamie. It's tough for us to get
to the EPS because when you think about it, Homestake, because they have
not had big hits but they roughly break even at 275, although the earnings
go up, roughly, you're giving 35 to 40 % of your shares away and it takes a
lot to pick up. The way I estimate it, you're going to need a hundred
million dollars of earnings from Homestake's side just to get to the
earnings that you have going forward. So it's a challenge for us to try to
get there, in terms of not being diluted for the next couple of years on an
EPS basis. Now the hedging that Homestake has recently done might help
there a bit, but I don't know if you can help me with that or not.
ANSWER
Well, we've got the synergies, and as I mentioned, Dan, there's
some benefits on the US GAAP side. It's about 15 million dollars a year in
addition. So, what we're looking at going forward is increasing those
synergies and creating a lot of additional value to make this transaction
financially accretive.
31
QUESTION
Just in terms of strategic things that you're looking at from a
Barrick's standpoint, obviously, Veladero we talked about a lot. Is
Australia important to you?
ANSWER
I think establishing a platform there makes perfect sense. That
whole region of the world is a significant gold producer. And to be able to
that with such low cost assets and strong production and starting off from
a number two position there, I think this opens up that many more
opportunities to us. That's what's so exciting about this thing is this
creates more opportunities for both our shareholders, it's just such an
excellent profile in terms of geographic locations and we're just
increasing the capabilities of the company in every respect.
QUESTION
Is a sovereign risk issue something that's bigger in the board's
mind now than it would have been two or three years ago?
ANSWER
We've always operated in places where we've felt comfortable.
Having said that, we feel particularly comfortable in Canada, the United
States, and Australia. I think that, increasingly, we're going find
ourselves looking at new and emerging countries. And having this as a base
to build on, actually enables us to assume more of that risk going forward.
QUESTION
Thank you very much.
ANSWER
Thank you, Dan. Ladies and Gentlemen, as I mentioned earlier,
Jack and I have to go over and do some press now. But I hope that we've
been able to convey to you just how excited we are about this transaction,
and that you've been able to see how culturally, strategically its such a
good fit for our both our shareholders. I think that Homestake has
outstanding assets of 2 million ounces of production at today's low cost
that Barrick's has. We think that Barrick's has the same thing in to
Homestake. Putting Pasqua Lama and Veladero open together, opens up a whole
new spectrum of opportunities for us, which I think will be very exciting
for decades to come. Frankly, you've seen our hedge position is back to
about where it was in the past, and with the [unintelligible] in the gold
price today, we feel very comfortable with that. To have this platform, as
I just mentioned to Dan, of being number one in the U.S. and Canada and
number two in Australia, we think that our companies together are stronger
and better positioned to take advantage of new opportunities. This
transaction gives both our shareholders a better company and far greater
liquidity. We look forward to talking to you in the future and if
32
you have any further questions please don't hesitate to call Igor, Richard,
Chaz or I. Thank you very much.
MODERATOR
Ladies and gentlemen, that concludes your conference call for
today. We thank you for participating and ask you to please disconnect your
lines at this time.
END OF TRANSCRIPT.
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