Barrick Sells Interest in South African Mine
The Canadian mining company Barrick Gold Corp. declared on September 11, 2006 that it would sell its 50% stock ownership in a South African mine to Gold Fields Ltd. Barrick Gold has been the owner of Placer Dome Inc. and therefore "South Deep" since January 2006. The decision to sell the mine was made because the "asset has failed to deliver the goods" since acquisition, and it will take another one and a half kilometers of drilling to get to the ore deposit yet.
The deal is planned to close in early 2007 and the agreed-upon purchase price of $1.5 billion will be paid by Gold Fields using $1.2 billion in cash and the remainder in shares . According to Barrick, this transaction is consistent with its strategy to raise funds through divesting acquired subsidies in order to develop its own projects in North and South America in the future.
The strategically relevant industry features include market growth rate and extent of rivalry . The domestic Canadian mining industry is in its maturity, while the international mining industry has only reached early maturity, at best. The sale of South Deep to Gold Fields is the release of an estimated 29.3 million ounces of gold in a mine with a 70 year life-span, into the hands of the competition, who will begin reaping the benefits in about one year's time . This signifies the end of Barrick's expansion in South Africa, as well as the beginning of a period of heightened global competition with its rivals.
Barrick was not pressured by its competitors to leave South Deep, as Porter's model may suggest. The company chose to leave this market because the only perceived profit opportunity for the mine was its outright sale. Gold Fields Inc. is stepping up to take advantage of its competitor's geographical weakness, as Gold Fields has another mining enterprise "just across the street from South Deep."
The trade-off of a mine with potential to last seventy years and produce one third of the world's bullion to a competitor, simply because it wasn't performing exceptionally well within the first six-months, is a very poor one indeed. This seems to be a tactical move on Barrick's behalf rather than a strategic one, considering that the sale of South Deep will bring immediate cash-flow while its retention would have produced long-term financial benefits.
The deal is planned to close in early 2007 and the agreed-upon purchase price of $1.5 billion will be paid by Gold Fields using $1.2 billion in cash and the remainder in shares . According to Barrick, this transaction is consistent with its strategy to raise funds through divesting acquired subsidies in order to develop its own projects in North and South America in the future.
The strategically relevant industry features include market growth rate and extent of rivalry . The domestic Canadian mining industry is in its maturity, while the international mining industry has only reached early maturity, at best. The sale of South Deep to Gold Fields is the release of an estimated 29.3 million ounces of gold in a mine with a 70 year life-span, into the hands of the competition, who will begin reaping the benefits in about one year's time . This signifies the end of Barrick's expansion in South Africa, as well as the beginning of a period of heightened global competition with its rivals.
Barrick was not pressured by its competitors to leave South Deep, as Porter's model may suggest. The company chose to leave this market because the only perceived profit opportunity for the mine was its outright sale. Gold Fields Inc. is stepping up to take advantage of its competitor's geographical weakness, as Gold Fields has another mining enterprise "just across the street from South Deep."
The trade-off of a mine with potential to last seventy years and produce one third of the world's bullion to a competitor, simply because it wasn't performing exceptionally well within the first six-months, is a very poor one indeed. This seems to be a tactical move on Barrick's behalf rather than a strategic one, considering that the sale of South Deep will bring immediate cash-flow while its retention would have produced long-term financial benefits.
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