In a victory for shareholders who have been calling for tighter capital discipline, Gold Fields resisted the temptation to sweeten its R120bn all-share offer for Yamana Gold on Monday after two North American rivals gatecrashed the rare SA-Canada tie-up with a cash-and stock bid.
The fate of the deal was thrown into doubt on Friday when precious metal companies Agnico Eagle and Pan American tabled a joint bid that valued Yamana at about $4.8bn and trumped Gold Fields’ earlier offer that valued Yamana at $6.8bn before the drop in the SA company’s share price chipped away at that valuation.
As of last week, Gold Fields’ offer meant Yamana was worth about $4bn, reflecting a nearly 20% drop in the former’s share price on worries that CEO Chris Griffith was offering too much when the deal was first announced in May.
As a result, the board of Yamana accepted the Agnico Eagle and Pan American bid as “superior”, a stance that tested Griffith’s determination to create a top-four global gold major with 14 operating assets as well as a pipeline of development projects and exploration properties.
“The board was unanimous in its decision not to offer to change the terms of the transaction as we continue to believe our transaction is strategically and financially superior,” Griffith said in a statement on Monday. “In coming to this determination, the board has taken into account its commitment to capital discipline and considered the fairness of the transaction to both Gold Fields and Yamana shareholders over the long term.”
Yamana had given Gold Fields until Friday to match the $4.8bn offer — which has a $1bn cash component. If Yamana backs out of the original terms of the deal, it would have to pay a break-up fee of about $300m (or R5.3bn) to Gold Fields.
Shareholders of both Yamana and Gold Fields are scheduled to vote on November 21 and 22.
Gold Fields’ decision won praise from analysts and one of its biggest shareholders, who have been pressing for tighter investment budgets in the global gold mining industry, which is under pressure to look for deals in the face of rising costs.
“The management has made the right decision because Gold Fields’ cost of capital is higher than the other bidder. The amount that you can pay for your assets is determined by the cost of capital. In this case, the other buyers have a lower cost of capital. Logically, they can pay more,” said Shane Watkins, chief investment officer at All Weather Capital. “Gold Fields should be applauded for not getting into the bidding war, which it cannot win anyway. The other thing that shareholders are concerned about is that Gold Fields tries to do another acquisition, which may be less favourably received than the Yamana deal.”
Gold Fields and other mining companies are looking for revenue sources beyond the traditional SA market, where ore grades have been declining while costs have escalated.
Griffith has been drumming up shareholder support for the Yamana offer after the violent market reaction when the proposal was announced in late May. One of the largest shareholders in both companies, fund manager VanEck, told the Toronto Globe & Mail that it “couldn’t comprehend the rationale” for the deal and cited the “horrible” market reaction.
Gold Fields shares ended little changed at R152.73 on the JSE on Monday.
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