Homestake Stock Falls on Purchase Plan News

Badly hurt by poor industry fundamentals and rebuffed in a takeover attempt earlier this year, San Francisco-based Homestake Mining Co. is hoping the planned purchase of a big Australian gold producer will help restore its luster.

But Wall Street showed apprehension about the $640-million transaction Monday, as shares of the company fell on concern that its purchase of Plutonic Resources Ltd. may not provide the much-needed boost.

The proposed stock deal, announced late Sunday, will double Homestake’s Australian output next year.

In a telephone interview Sunday, Homestake Chief Executive Jack Thompson compared the deal to the company’s 1992 purchase of International Corona, which also occurred amid an industry decline.

“Corona helped us through the ‘90s. We hope that Plutonic will help us through the next decade,” he said.

Gold prices have fallen to an 18-year low this year, sending gold stocks down sharply as well.

Thompson said the Plutonic deal is being driven by the prospect for discoveries in Western Australia.

The proposed transaction “makes us a larger, stronger, lower-cost company able to survive the current low gold prices. It enhances our future by the acquisition of a wonderful land position in one of the world’s great gold provinces,” Thompson said.

But shares of Homestake fell 56 cents to close at $9.38 on the New York Stock Exchange on views that the benefits may be less certain than suggested.