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The bankers behind Barrick Gold Corp.’s US$3-billion equity offering faced a tall order: sell the most shares ever issued in a Canadian bought deal; do it in a tough gold market; and do it for a company that was struggling to regain investor confidence after a series of writedowns and strategic blunders.
It was clear by last summer that Barrick, the world’s biggest gold producer, should do something about its over-levered balance sheet. Gold prices were down sharply from their highs in 2011, and analysts were warning the company could have liquidity problems if prices dropped below US$1,200 an ounce for a prolonged period.
Throughout this period, Barrick’s management was in touch with bankers from RBC Capital Markets on a potential plan to issue equity in order to retire debt. That Barrick turned to RBC was no surprise: the two firms have a longstanding relationship that dates back to the gold miner’s earliest days in the mid-1980s.
“They have done business with others. But if you look at who they have done business with over a long period of time, we’ve been privileged to have supported Barrick on a number of their milestone transactions,” said Jamie Anderson, deputy chairman of RBC Capital Markets.
It was painful to think about issuing stock when Barrick’s share price was down so much from its highs, but everyone agreed it was the prudent thing to do. At one point, RBC chief Gord Nixon told Barrick chairman Peter Munk that he “never” worked with a client that regretted raising capital.
Barclays Capital Canada and GMP Securities were the other two lead banks in the syndicate. Michael Wilson and Bruce Rothney, the leaders of Barclays’ Canadian group, are both RBC veterans who know Barrick management well. They pitched Barrick on an equity deal and convinced the company that they would be a valuable part of the team. And Barclays asked GMP to join the syndicate because of that firm’s vast experience with Canadian bought deals.
GMP co-founder Gene McBurney said that when his team first ran the numbers on a potential bought deal, they were thinking of something far smaller than US$3-billion. But before long, they realized that US$1-billion or US$2-billion would not be enough to properly repair Barrick’s balance sheet.
“We decided we had to do US$3-billion. That would move the dial and get people’s attention,” he said.
As summer passed into fall, Barrick got closer to pulling the trigger on the offering. It was a busy time; the company had third quarter earnings coming out at the end of October, and also decided to halt construction of the troubled Pascua-Lama project, which was far over budget.
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