Here’s a business deal for gold times’ sake.
On Tuesday, South African mining firm Gold Fields announced a deal to buy Canada’s Yamana Gold in a $6.7 billion, all-share deal. While the acquisition would make Fields the world’s fourth-biggest mining company and help buttress its balance sheet amidst falling gold prices, the steep premium it agreed to pay is causing Yamana shareholders to say “thanks a bullion.”
No Country for Gold Men
Gold Fields produces roughly 2.4 million ounces of gold annually from sites in Australia, Ghana, Peru, and its home country South Africa, where 60% of the company’s reserves are. South Africa, however, is considered one of the least attractive jurisdictions for global mining, ranking 75th out of 84 locations as measured by ‘geologic attractiveness’ and local policy.
Gold Fields was on the hunt for a deal, to try and hedge against the exposure at home:
- With Yamana, Gold Fields will add projects in Canada, Brazil, Argentina, and Chile to its portfolio. “We don’t have any projects in the pipeline or any way of countering the decline in production that is due to come from Gold Fields over the next number of years,” Gold Fields Chief Executive Chris Griffith explained to The Wall Street Journal.
- If the deal is approved, Gold Fields shareholders will end up with 61% of the combined, $15.6 billion company, and Yamana Gold shareholders the remaining 39%. But Gold Fields is paying a 34% premium on Yamana’s average share price in the last 10 days, which sent Gold Fields shares tumbling 11% as investors wondered if it paid too much — Credit Suisse analysts said the premium is “considerably higher” than other recent gold deals.
“You will not be relevant if you are less than something like $20 billion in market capitalization,” Neal Froneman, CEO of mining company Sibanye Stillwater, told S&P Global Market Intelligence in 2020, reflecting analyst concerns about consolidation in the sector. “You’re not going to appeal to funds. You’re not going to feature in the indices.”
Great Mines Think Alike: Earlier this year Canadian mining firms Kirkland Lake Gold and Agnico Eagle Mines completed a $10 billion merger, and Australia’s Newcrest Mining’s completed a $3.5 billion takeover of Vancouver-based Pretium Resources. Call it gold fusion.