South Africa’s Gold Fields Ltd. has ended its flawed attempt to acquire Toronto-based Yamana Gold Inc. YRI-T, handing victory to Canadian precious metals miners Agnico Eagle Mines Ltd. AEM-T and Pan American Silver Corp. PAAS-T.
In late May, Johannesburg-based Gold Fields proposed buying Yamana for US$6.7-billion in stock, a 42-per-cent premium to Yamana’s market price. The deal was poorly received, with Gold Fields shares losing as much as 40 per cent in the months that followed, and two of its biggest shareholders, VanEck and RWC Partners Ltd. (known as Redwheel), denounced the deal as making no sense strategically.
With almost the entire paper premium being offered by Gold Fields gone, Agnico and Pan American pounced last Friday with a proposal that was 15 per cent higher. On Tuesday, Gold Fields said it was unwilling to top the new offer from the Canadians, putting an end to a takeover saga that gripped the global mining industry for almost six months.
Joe Foster, portfolio manager at VanEck, a major shareholder of Gold Fields, Yamana and Agnico Eagle, did not like the earlier Gold Fields offer for Yamana, calling it a “poorly structured deal” that got a “horrible market reaction.” But now he’s firmly in favour of the takeover by Agnico and Pan American.
“This looks like a good deal for all parties,” he wrote in an e-mail to The Globe and Mail. “A higher premium and cash component for Yamana shareholders. Good synergies for Agnico and Pan American.” And Gold Fields, he wrote, will be free to pursue other growth opportunities.
Yamana shareholders are now set to get US$1.0406 a share in cash, 0.0376 of an Agnico share and 0.1598 of a Pan American share for each security held.
If the deal gets approved by shareholders, Agnico will take over the 50 per cent it doesn’t already own in the massive Canadian Malartic mine from Yamana, as well as Yamana’s Wasamac development project, both of which are in the prolific Abitibi gold district in Quebec. Pan American, meantime, will buy the rest of Yamana’s assets, which include four sizeable gold and silver mines in South America.
The Globe reported last month that Agnico considered buying Yamana last year, but earlier this year decided it was only interested in Yamana’s Canadian assets, particularly the Malartic mine. And while Agnico stopped short then of making a takeover offer for Malartic, behind the scenes it had not given up.
“We were always interested in a way that we could get full ownership of Malartic,” Sean Boyd, executive chair of Agnico, said in an interview.
A big reason for Agnico’s original hesitation in buying Yamana’s Canadian assets was its inability to do due diligence on the portfolio. But after the Gold Fields offer floundered in the marketplace, Agnico made a formal proposal to Yamana, which allowed it to be able to do the diligence it needed, so it could fairly evaluate what the assets were actually worth.
“We saw an opportunity. We presented a proposal, we worked with Yamana and here we are where it has been accepted,” Mr. Boyd said.
The only possible spoiler for the deal as structured would be another mining company outbidding the Agnico and Pan American offer for Yamana, or another party attempting to buy either of the acquirers.
When asked if he’d considered the possibility of Toronto-based Barrick Gold Corp. emerging as a bidder for Agnico, Mr. Boyd said that almost certainly is not going to happen. Given Agnico’s 60-year history operating its own assets, the idea of another company, even a major such as Barrick, taking over the management of its mines seems highly unlikely, he added.
“It’s hard for other companies to make a case that they can do a better job,” he said.
By buying Yamana, Agnico is poised to narrow the gap with Barrick, the world’s second-largest gold miner in market value and production. Unlike Barrick, which has sat out the past few years of mergers and acquisitions, Agnico has been a prolific dealmaker, buying, among other assets, Arctic miner TMAC Resources Inc. and Kirkland Lake Gold Ltd. The Kirkland Lake acquisition brought the huge Detour Lake mine in Northern Ontario and the high-grade Fosterville gold mine in Australia into Agnico’s portfolio.
Yamana was founded by former investment banker Peter Marrone in 2003. Last year, it produced 885,000 ounces of gold and 9.2 million ounces of silver. Although its stock was trading far below its all-time high, in the months leading up the Gold Fields offer, Yamana was outperforming almost all its peers on costs, earnings and production, making it an attractive acquisition target.
Yamana executives and board members stand to walk away with more than US$100-million in severance and other compensation benefits if the sale of the company is approved by shareholders.