Gold Fields bags Canadian peer Yamana in $6.7bn all-equity deal
Gold Fields is set to acquire Canadian peer Yamana for $6.7bn in an all-equity deal. This is a blockbuster that will see Gold Fields controlling 61% of the new entity while Yamana shareholders will hold the remaining 39%. For Gold Fields, the deal provides a project pipeline that will more than offset expected declines in its current production base from 2027.
Gold Fields has been on the hunt for acquisitions and in Canada it has now bagged one that should propel it into the Big Five of world gold producers. In fact, it is now on course to be number three from number six.
Gold Fields had been preoccupied with organic growth in recent years under former CEO Nick Holland, who set the company on its current path of mechanised, global operations with a focus on profitable ounces.
But Gold Fields faced a likely fall in production from an expected peak of 2.8 million ounces in 2024/25. Its only remaining project in the pipeline is its $860-million Salares Norte project in Chile, which remains on course despite the distraction posed by a colony of endangered chinchillas that the company has been trying to relocate.
“After Salares, we don’t have any projects in our pipeline,” Gold Fields CEO Chris Griffith said in a conference call with journalists, noting the pipeline of projects that Yamana brings to the table. “It’s a great deal for us … it will be transformational for Gold Fields.”
These include the Canadian miner’s copper/gold Mara project in Argentina, and Gold Fields is keen on copper as it is regarded as a “green metal” needed for the global energy transition. Yamana’s mines and projects are in Canada and South America. Gold Fields already has a South American presence but its production is mostly from Australia and Africa. South Deep is its last operational South African asset and that has recently turned the corner to profitability, it seems.
Gold Fields’ 2021 production was 2.3 million ounces and Yamana’s was 885,000 ounces, which adds up to almost 3.2 million ounces. The combined company’s target is for 3.8 million ounces by 2024.
The deal has the support of both boards and is expected to be a done deal by the third quarter of 2022, subject to shareholder and regulatory approvals.
Gold Fields’ share price tanked by about 20% on Tuesday, but this is often the initial price that the buyers pay in an all-share deal. The transaction valued Yamana at $6.7-billion – about R105-billion – a premium of almost 34% on the target’s 10-day volume-weighted average price on 27 May.
Griffith noted in the media call that when you offer a premium on the company you plan to acquire, your own share price tends to take a short-term knock, while your target’s share price tends to go north. Yamana’s share price did just that, climbing by more than 8%. It remains to be seen what the share price of the combined entity eventually does, but if Gold Fields’ shareholders support the transaction, expect its share price to regain lost ground.
Among other things, the lack of debt funding needed for the transaction is clearly a plus.
The initial view from analysts has been cautious.
“Gold Fields and Yamana have disparate assets that are unlikely to yield significant operating synergies beyond overhead savings. Moreover, although Yamana’s unit cash costs profile is slightly better than that of Gold Fields alone, it will account for a smaller share (about 30%) of the combined company’s total production and have similar all-in sustaining costs that we estimate at $1,100 per ounce,” S&P Global Ratings said in a note on the transaction.
“Also, both companies are proceeding with growth initiatives – for example, Gold Fields’ Salares Norte development, and Yamana’s Canadian Malartic underground expansion – and face inflationary pressures that could add a degree of cost variability. As such, we do not anticipate a material change in Gold Fields’ pro forma margins and returns over the near term.”
The deal also points to ongoing consolidation in the precious metals sector. Could a bigger Gold Fields also be a bigger target itself for bigger producers such as Newmont or Barrick?
“We don’t spend our life worrying about who can come and gobble us,” Griffith told Business Maverick. “If someone thinks we’re attractive, then we’re doing our job well. And if, ultimately, that’s to the benefit of shareholders, then that’s great. It’s like what we are doing now, we think this is to the benefit of both sets of shareholders and that’s why this deal is happening.” DM/BM