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If buyer’s remorse was a flu, then this would have been a full-on outbreak. The week witnessed extraordinary confessions from repentant executives on deals struck at the height of the commodities boom.
Barrick Gold Corp. chairman Peter Munk recognized what everybody long knew, that buying Equinox Minerals Ltd., in 2011 at the astounding price of $7.3-billion, in cash no less, was a blunder of epic proportions. “That was my first mistake – entirely attributed to hubris,” Mr. Munk confided to The Globe & Mail.
Mining giant Rio Tinto Group also owned up to its past mistakes. In an investment seminar, its chief executive, Sam Walsh, conceded the second largest miner had even toyed with the idea of reselling Alcan, the Montreal-based aluminium producer it acquired for $38-billion in 2007 in the midst of a crazy shopping spree. Close to $30-billion of that investment has since been written off. “We had lost focus on what really matters,” Mr. Walsh said.
Then there is Chinese energy giant CNOOC. While its chief executive, Li Fanrong, said in September he was pleased with the acquisition of energy producer Nexen Inc., there are grumblings within CNOOC’s walls.
Nexen’s troubled Long Lake operation is operating under capacity, and returns from the Calgary-based company are sub par, lamented its chief energy researcher, Chen Wei Dong. “That is a problem,” he said to the Globe.
If those confessions were intended to make the pill any easier to swallow, it isn’t working, though. The big retrenchment is in full swing, after falling commodity prices have changed the fortunes of producers. Companies such as Rio Tinto are making big cuts to their capital spending. Others such as Barrick are postponing projects or halting them indefinitely. And many are laying off employees in droves.
Take Potash Corp. of Saskatchewan Inc. The company will let go over 1,000 workers – 18 per cent of its work force – and halt production at its costliest mines as it struggles with plummeting potash prices following the breakdown of the Russian-Belarusian cartel.
Potash Corp. employees may now look with envy at Nexen workers. The federal government blocked the $38.6-billion (U.S.) sale of the Saskatoon-based miner by BHP-Billiton in 2010. In a bittersweet irony, Potash can fire as many employees as it wants, whereas Chinese-controlled Nexen has its hands tied. CNOOC had to promise to maintain its Canadian workforce to secure Ottawa’s approval for its highly contested $15.1 billion (U.S.) takeover.
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