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A worker surveys an access tunnel of Gold Fields South Africa Company's South Deep gold mine in Westonaria, Gauteng, on Oct. 12.LUCA SOLA/AFP/Getty Images

The top gold fund manager with the firm that owns the largest amount of shares in South Africa’s Gold Fields Ltd. GFI-N and Toronto’s Yamana Gold Inc. YRI-T is denouncing the proposed merger of the two companies as Gold Fields struggles to win shareholder support for the deal.

Joe Foster, portfolio manager with New-York-based Van Eck said in an interview the deal is “poorly structured,” received a “horrible market reaction” and he cannot comprehend the rationale for the multibillion-dollar transaction from the viewpoint of either the acquirer or the target.

Johannesburg-based Gold Fields in May said it intended to acquire Yamana for a 42-per-cent premium to its stock market value in a share swap worth US$6.7-billion. The company said buying Yamana would help address long-term growth challenges in Gold Fields itself.

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But Mr. Foster said there had been no indication Gold Fields was facing a growth problem and, in fact, the opposite seemed to be true.

“It really was unexpected, and the market didn’t, and maybe still doesn’t, understand the strategy behind the deal,” he said.

Mr. Foster was also critical of the large premium Gold Fields has offered, and said transactions in which the acquirer pays no premium have proven to perform far better in the long term.

Gold Fields shares lost more than a fifth of their value the day the deal was announced, and have lost about a third in total since then, amid a broader sell-off in the gold mining sector.

Van Eck owns about 5.9 per cent of Gold Fields’ U.S.-listed shares, and has a 10.6-per-cent stake in Yamana.

Within Van Eck, most of the Gold Fields shares are owned by the firm’s passive funds, which track stock indexes, rather than the active fund Mr. Foster manages. Van Eck’s passive managers are free to make up their own minds when it comes to shareholder votes, but Mr. Foster is the gold industry expert within the firm, and he gives his opinion to the passive managers before any votes.

The concern from Mr. Foster about the merits of the merger is another blow to Gold Fields as it attempts to convince its shareholders to back the deal. Earlier this week, its chief executive, Chris Griffith, said in a Monday media call that while the company was making headway in its marketing efforts, he hoped a few of Gold Fields’ major investors might step up and endorse the deal publicly.

The opposite, in fact, has since transpired. Gold Fields’ second-biggest shareholder, RWC Partners Ltd., known as Redwheel, doubled down on the opposition to the deal it first expressed publicly in June. In an interview on Tuesday, John Malloy, co-head of the emerging and frontier markets team at Redwheel, said Gold Fields is taking on a lot of extra risk by doing the deal, because the success of Yamana’s biggest growth property, MARA in Argentina, is far from a sure thing.

“Argentina today is basically uninvestable,” he said. “The currency market is a mess. The equity market is a mess. It’s a high-risk location. Right now, companies can’t get money out of Argentina.”

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Yamana Gold's Jacobina operation in northern Brazil.

Gold Fields shareholders vote on the deal on Nov. 22 and the company needs to obtain 75 per cent of votes cast to succeed. Yamana shareholders meet the day before and the threshold for success is two-thirds of votes cast.

Van Eck’s Mr. Foster is even more critical of the deal from Yamana’s point of view, saying the Canadian mid-tier gold and silver miner is outperforming on every meaningful metric the industry follows, namely costs, earnings and production. He’s convinced that Yamana can perform much better remaining as a stand-alone company, rather than being swallowed up by a larger miner, which would introduce considerable uncertainty.

“There’s a lot of risk of putting Yamana into Gold Fields,” he said. “Mining is a risky business, and we rarely have companies reach this level of excellence that we have with Yamana.”

Yamana’s shares have consistently traded at a discount to the share-exchange ratio being offered by Gold Fields, suggesting investors are unsure whether the acquisition will succeed.

Yamana’s recent management information circular revealed that before agreeing to the acquisition by Gold Fields, It engaged in merger and acquisition talks with five other companies.

A source familiar with the talks said that one of those companies, identified as Party Four in the circular, was Agnico Eagle Gold Mines Ltd. AEM-T. The Globe and Mail is not identifying the source as they were not authorized to speak publicly on the matter.

Yamana and Agnico Eagle both declined to comment.

The circular said Party Four engaged with Yamana in early 2021 and for a time considered buying Yamana at a premium. Earlier this year, talks between Yamana and Party Four picked up again, but this time Party Four was only interested in acquiring certain assets from Yamana.

The source said that the main asset Agnico wanted to buy from Yamana was its 50-per-cent share in the Malartic gold mine in Quebec. That transaction would have given Agnico full ownership of Malartic.

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