(Updates share price, adds source comment, offering details)
By Allison Martell and Euan Rocha
TORONTO Nov 1 A massive public share offering
from Barrick Gold Corp proved a tough sell, market
sources said on Friday, as the price of gold dropped and
investors digested news that the miner had shelved a key growth
Toronto-based Barrick said late on Thursday it would issue
up to $3.45 billion worth of common shares at $18.35 a share in
a deal to pay down part of its heavy debt load.
Shares of the world's biggest gold producer closed 34 cents
below the offer price on Friday.
Barrick would not comment on the deal, which was announced
hours after the Toronto-based company said it was shelving its
massive Pascua-Lama gold-silver mine, high in the Andes on the
border between Chile and Argentina.
"The timing of the whole deal was really bad. They announced
it last night, the Europeans were basically gone, gold had just
had a crappy day and all the nice young traders on this end were
getting their kids dressed up for trick or treating," said a
trading source who asked not to be named.
Pascua-Lama had been a key growth project for Barrick but
also a drain on its cash reserves.
Barrick's New York-listed stock closed down 7.1 percent at
$18.01, its lowest level in more than two weeks. Shares of
precious metal miners were broadly lower as the price of gold
fell to a three-week low.
The weak reception for the offering does not affect the
price Barrick receives for its shares. It could hurt the deal's
underwriters, led by RBC Capital Markets, Barclays
and GMP Securities LP.
The deal should help relieve worries about Barrick's debt,
which totaled $15.4 billion on Sept. 30. The company's market
capitalization was about $19.5 billion at Thursday's close.
But there is a cost. The offering, coming with Barrick's
stock down more than 40 percent this year to date, badly dilutes
existing shareholders, increasing the company's share count by
more than 15 percent.
And it is the company's second multi-billion dollar equity
offering in only a few years. In 2009, Barrick raised some $3.0
billion at $36.95 per share, so it could eliminate its gold
Adrian Day, president of Adrian Day Asset Management, saw
Barrick's decision to mothball Pascua-Lama as a long-term
negative for the company, because the project underpins so much
of Barrick's future growth.
"It looks to me like a long-term shutdown - and that removes
at least a large part of the whole thesis for buying Barrick,"
said Day, who has about $145 million in assets under management.
Day had been building a position in Barrick's beaten-down
shares before the announcement, and currently has about $400,000
in the company. But he passed on the new issue because he
believed the stock would fall below the offer price.
In a bought deal, underwriters commit to purchase the entire
offering from a client and then resell it. If they resell shares
below the offer price, their margins take a hit, and they could
even lose money on the deal.
It was not clear how much of the offering the banks had been
able to sell before the shares ropped below the offer price.
RBC and Barclays declined to comment. GMP could not be
reached for comment.
The fall in Barrick's Toronto-listed stock on Friday - down
C$1.56 at C$18.72 - was the biggest drag on Canada's main stock
index, the Toronto Stock Exchange's S&P/TSX composite index
(Additional reporting by Cameron French; Editing by Peter
Galloway, Janet Guttsman, James Dalgleish and Andrew Hay)