Chris Griffith, the chief executive officer of Gold Fields Ltd. GFIOF, is fielding questions from shareholders concerned that the South African gold major is overpaying for Yamana Inc. YRI-T, but he is nonetheless determined to push ahead on the deal, insisting the price on the table is fair.
Earlier this week, Johannesburg-based Gold Fields announced it intends to acquire Toronto-based Yamana for US$6.7-billion in an all-stock transaction. Yamana shareholders are set to receive 0.6 of a Gold Fields share for each of their Yamana shares, a premium of 42 per cent over the Friday close on the New York Stock Exchange.
That paper premium largely vanished as soon as the shares started trading on Tuesday, with Gold Field’s stock plummeting by 23 per cent, and Yamana’s share price only rising by 3.7 per cent. Gold Field investors fretted about the prospect of their shareholdings being diluted, the lack of cost savings associated with the deal, and the steep premium that is being offered. While Gold Fields’ shares recovered some lost ground on Wednesday, its stock is still 21 per cent below where it was before the deal was announced.
“The scale of the drop in the share price was disappointing and unexpected,” said Mr. Griffith in an interview.
Since the current round of consolidation in the gold industry began in the fall of 2018, with Barrick Gold Corp.’s acquisition of Randgold Resources Ltd., low- or no-premium acquisitions have become the preferred deal-making currency.
Scotia Capital Markets Inc. recently assessed the 13-month share price performance of eight acquirers, comparing them with an index tracking gold miners. Zero-premium transactions trounced those where acquirers paid a premium. Kirkland Lake Gold Ltd.’s 24-per-cent premium acquisition of Detour Gold performed the worst with a 50-per-cent decline, while Equinox Gold Corp.’s zero-premium acquisition of Leagold Mining Corp. was the top performer with a 40-per-cent return.
Mr. Griffith is aware of the preference for low-premium deals, and it’s a concern he’s hearing about.
“This is a very large deal,” said Mr. Griffith. “I think that the shareholders, number one, are worried if we’ve overpaid.”
When asked if Goldfields would consider walking away from the deal, if its stock-price weakness persists until the shareholder vote later this year, he said the company “will have to cross that bridge when we get there.”
“The reason that we are talking to shareholders is not because we anticipate not getting their support,” he said. “We absolutely believe that we can get the support.”
Gold Fields had no choice but to pay a premium, because Yamana wasn’t going to agree to be sold at its market price, said Mr. Griffith. And he’s convinced there’s lots of upside ahead in its shares after the deal closes because of this acquisition.
A major part of the company’s rationale for buying Yamana is the long-term growth it sees in several of its development projects, including MARA in Argentina, a copper, gold, molybdenum and silver play.
There is precedent for takeover deals that have had protracted negative reactions to still get approved, Last year, Fortuna Silver Mines Inc., which proposed a 40-per-cent premium takeover of Roxgold Inc., lost a fifth of its value on the day the deal was announced. Still both Roxgold and Fortuna shareholders voted decisively in favour of the deal. Similarly Kirkland Lake Gold Ltd.’s acquisition of Detour Gold Corp. was approved, amid protracted weakness in Kirkland’s shares.
If Gold Fields did walk away from the deal, it would have to pay a termination fee of US$450-million to Yamana. Meantime, if a third-party steals Yamana away from Gold Fields, the South African miner would be entitled to US$300-million.
Josh Wolfson, director of global mining research at RBC Capital Markets, said there is only a small chance of another bidder emerging for Yamana. Toronto-based Agnico Eagle Mines Ltd. may be interested in acquiring the 50 per cent of the Malartic mine it doesn’t already own from Yamana, he said.
However, Yamana’s other mines in Brazil, Chile and Argentina would not be coveted by Agnico, as they are too small, and located in countries that Agnico has no expertise in, Mr. Wolfson added.
Agnico declined to comment on Yamana or Gold Field’s acquisition.
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