Gold Fields has mounted a robust defence against detractors of its $6.7bn (R121bn) bid for Canada’s Yamana Gold, as it waits to see whether the two companies’ shareholders will vote to approve a deal that will create the world’s fourth-largest gold producer, with strong growth prospects.
Three-quarters of Goldfields’ shareholders and two-thirds of Yamana’s will have to say yes on November 21-22 for the all-share deal to go ahead.
Gold Fields CEO Chris Griffith said it was a “big transformational deal” that enabled his company, which is ramping up production and payback from its South Deep mine in SA and Salares Norte in Chile over the next three to four years, to act from a position of strength to lock in options for growth through the next five to eight years and longer.
But one of the largest shareholders in both companies, fund manager VanEck, last week told the Toronto Globe & Mail that it “couldn’t comprehend the rationale” for the deal and cited the “horrible” market reaction. Gold Fields is now waiting to see the response from the influential global proxy advisers, ISS and Glass Lewis, who Griffith and his team briefed on the deal last week.
The formal circular on the proposed deal released on October 27 included an independent valuation, required by the JSE, that valued Yamana’s mining assets at between $6.8bn and $8bn.
Many shareholders were waiting to see the details in the circular. Some Gold Fields shareholders are said to be unhappy that the premium being paid for Yamana is too high. Some investors would also prefer Gold Fields simply to do nothing, so that they can continue to take advantage of the strong returns and generous dividends they have seen from Gold Fields in recent years.
But Griffith said: “We can’t wait until we have a problem ... good assets in good mining jurisdictions are getting scarcer.”
Speaking in Johannesburg on Friday between roadshows, Griffith said in an interview: “We’ve had internal options in the past and we’ve invested in those. Going forward we no longer have [those] available to the company, which is why we need to look externally.”
Globally, exploration finds had over the past decade fallen to just a fraction of what they were in the past, even though more money was being spent on gold exploration.
“That means you are likely to see more acquisitions and more consolidation in the gold industry and you are also seeing the cost of doing these deals increasing. And that is why we think this is a good time to do this deal, because in time those things will become more expensive, as the race for consolidation and the race for good assets intensifies,” Griffith said.
The proposed merger will add assets in Canada and Brazil to the list of jurisdictions in which Gold Fields already operates, which includes Australia, Ghana, Peru and Chile as well as SA. Canada and Australia are viewed globally as particularly attractive mining investment destinations and Gold Fields has long wanted a foothold in Canada. But the deal would also add the Mara development project in Argentina, which the independent valuation puts at $800m to $1bn of the Yamana total.
That’s raised some concern about adding a mining jurisdiction that is widely regarded as uninvestable.
Griffith said Gold Fields would need to look at Yamana’s whole portfolio of assets once the merger was in place, but would take the best part of a year to do the integration and review the assets.
Other options
Because the company was doing the proposed deal with shares, instead of overleveraging itself, it had time.
“We can evaluate the short-term and longer-term options for growth. We’re not forced to play with all the toys at one time,” he said. If the deal failed to go ahead, Gold Fields had other options, even if they were less optimal than the Yamana deal.
The Gold Fields share initially lost about 20% on the day the deal was announced at the end of May, but it has come back since then, relative to the market, with the global benchmark GDX index dropping 25% as global interest rates have risen and the gold price fallen. The Yamana share price has risen relative to the market, which Griffith said confirmed that the market was seeing the deal as positive for Yamana. Gold Fields’ share price was always expected to reduce because it is paying a premium, he said.
By the JSE’s close on Friday, Gold Fields’ share price was down 1.42% to R148.96, giving it a market value of R132bn, R11bn more than the value of the Yamana deal.
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