Gold Fields is working around the clock to ensure its proposed $6.7bn (R114.3bn) acquisition of Canadian producer Yamana Gold crosses the finish line and this week announced measures to bolster sentiment towards the deal among apprehensive shareholders.
The group on Monday unveiled changes to its dividend policy to ensure payment of between 30% and 45% of normalised earnings, saying it would pay a dividend at the top end of the revised policy next year, after the proposed acquisition takes effect.
The group will also apply to list on the Toronto Stock Exchange (TSX), in addition to its listing on the JSE and New York Stock Exchanges, it said.
CEO Chris Griffith told journalists that by revising the dividend policy the group was giving comfort that cash would continue flowing to shareholders even after the deal.
“It is sending a message of confidence in our capital allocation process."
He added that the group was improving shareholder value after they raised concerns during road shows with management since the deal was announced.
At the end of May Gold Fields punted the proposed transaction as a driver of long-term growth, saying it would propel the group to fourth-biggest gold producer in the world.
Gold Fields requires a majority of shareholders to approve the deal, but has faced criticism about the $6.7bn price tag that represented a premium of 33.8% to Yamana’s market cap at the time the deal was announced.
The Financial Times reported last month that investment company Redwheel, in an open letter, urged the company not to buy Yamana Gold as the deal was too expensive and "the firm should rather focus on returning cash to shareholders".
Griffith told investors this week that while the $6.7bn offer was an implied premium to Yamana’s market cap for the day the deal was announced, it was not at a premium to the value Gold Fields could see in the portfolio in a conservative management case.
“The near-term cash-flow dilution is mitigated by new opportunities that we see in the business that are created by the transaction."
Griffith said “the focus is around long-term value and we acknowledge there is short-term dilution. This transaction is an investment into longer-term investment, growth and fundamental value which is all essential to preserving our ability to maintain and grow shareholder distributions beyond the medium term.”
An expert, who spoke on condition of anonymity, believes Gold Fields could have negotiated a better price with Yamana. He said the revision of the dividend policy was a move aimed at appeasing Gold Fields shareholders, while listing on the TSX is aimed at softening Canadian shareholders.
“I think the decision to increase the dividend policy communicates a message that Gold Fields is serious about capital allocation. It gives comfort that after this deal no cash will be directed to doing deals, but I think it’s not value accretive for them. I do not think that it will work.”
The people who are going to get more out of this deal are the Yamana shareholders. They got a big premium and Gold Fields will now list on the TSX
He said increasing the payout ratio was not going to grow dividends flowing to Gold Fields shareholders because they were being diluted by the number of shares to Yamana shareholders.
“The people who are going to get more out of this deal are the Yamana shareholders. They got a big premium and Gold Fields will now list on the TSX.”
Andrew Bahlmann, CE Corporate and Advisory at Deal Leaders International, said Gold Fields’ dividend policy is “sending a message about their confidence in the deal".
"If indeed we are entering a concentrated consolidation of the gold industry, the time is right for such an acquisition as Yamana’s quality assets, even at a premium and sweetener.”
Bahlmann said the deal added value to Gold Fields and should not be judged by short-term moves in the share price as it added considerably to its global diversification and scale.
He said these were benefits which, in the long run, would likely outweigh the sweeteners on offer, while Yamana had a healthy project pipeline in good jurisdictions with increasing production. It therefore carried promising potential.
“Gold Fields’ share price has derated and that damage is already done – not going ahead with this deal is unlikely to mean the company will regain its previous rating in the short term. It may do well in the longer term if this deal goes ahead.
"Without it, Gold Fields’ production will fall as apart from its Salares Norte project in Chile. It doesn’t have other major growth projects in its pipeline. The Yamana transaction will grow Gold Fields’ production and the completion of the Salares Norte project will make Gold Fields the world’s third-largest gold producer."
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