Gold Fields, one of the largest gold miners in the world, whose proposed $6.7bn (R103bn) acquisition of Canadian miner Yamana Gold has been poorly received by some investors, says it plans to beef up its dividend policy and will seek a listing in Canada after the acquisition.
The miner said on Monday that it was looking to increase its dividend payout policy to between 30% and 45% of normalised profit, from 20% to 35% previously, which would enhance the value of the transaction for shareholders and may win over some critics.
Gold Fields said it would target paying a dividend at the top end of the revised dividend policy (45% of normalised earnings) for the 2023 dividend cycles, following implementation of the proposed acquisition.
Gold Fields CEO Chris Griffith told journalists on Monday that while the new dividend approach did not change the structure of the offer, it did send a message about the confidence the company had in the deal and that there were going to be cash returns to shareholders in a higher range than before the acquisition.
The higher dividend was also an attempt, he said, to show some offset to the short-term cash flow dilution that would result from the deal.
Griffith said during an investor call that at the time when the $6.7bn offer was made, it was at an implied premium to Yamana’s market capitalisation, but the offer was “not at a premium to the value that we can see in the portfolio.
“Our focus is about long-term value. We acknowledge that there is short-term dilution, but this transaction is an investment into longer-term replacement, growth and fundamental value, which are all essential to preserving our ability to maintain and grow shareholder distributions beyond the medium term,” he said.
Opportunities
The near-term cash flow dilution, he said, would be mitigated by new opportunities that are created by the transaction to generate enhanced operating cash flow.
Further commenting on the new dividend structure, Griffith said: “It is because of the combined strength of this enlarged portfolio, and because we don’t need to allocate cash to grow further options for the company, that we have the confidence to be able to announce an enhanced dividend policy.”
Peter Marrone, the executive chair of Yamana Gold, said during the investor call that it was “delighted with the enhanced dividend policy.
“We’ve been a big believer in the return of cash to investors ... since 2019, we have increased our dividend by 500%, so we are delighted with the approach that Gold Fields has taken, and we think this should be significant to investors.”
Referring to the merits of the acquisition, Marrone said both companies had other options, but “none were as compelling as this transaction.
“Let me put it bluntly, we had other options and we were aware that Gold Fields had other options. But we selected Gold Fields and they selected Yamana out of the many options under consideration. This option represents the best value. This is the deal that shareholders should support,” he said.
Gold Fields shares were down 0.82% at R157.25 by the close, but it fared better than its peers, with the JSE’s precious metals index down 2.85%.
The miner’s shares have still lost 17.5% since the deal was made public. The announcement in May resulted in Gold Fields’ shares slumping by almost a fifth in response, with analysts noting the huge deal came at both a premium to the value of the assets and significant risk as global interest rates rise — something that erodes gold’s relative value as an inflation hedge.
The rare SA-Canada tie-up will also seek a listing on the Toronto Stock Exchange, which would be in addition to its existing primary listing on the JSE and a secondary listing in New York.
While some have noted that over the long term this would be a good deal for Gold Fields, extending the life of its assets, others have criticised the deal, including UK investment company Redwheel and SA asset manager All Weather Capital, as too risky and expensive.
In an unusual move, Gold Fields has taken out a number of online adverts and paid Twitter posts to promote the deal.
Griffith said the initial shareholder response to the deal was to be expected, adding that while shareholders could understand that the board had to look after the long-term strategy, this may be at odds with shareholders’ short-term expectations.
“But I think we can get shareholders to see what we are seeing, and why we see this as a very good deal for the long-term strategy, and, actually, we can still to a large extent look after short-term expectations.”
The Yamana deal will result in Gold Fields paying a premium of 33.8% to the 10-day volume-weighted average price of Yamana shares before the deal’s announcement.
If the merger goes ahead, it would add five active mines to the Gold Fields network, bringing the total number of operating assets to 14, together with a pipeline of development projects and exploration properties.
Gold Fields shareholders would own 61% of the combined group, which would become the world’s fourth-largest gold producer. They are set to vote on the deal in a special meeting, earmarked to take place on October 12. With Katharine Child
Update: July 11 2022
This article has been updated with share price information.
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