GOLD Fields is sticking to its guns regarding its proposed takeover of Yamana Gold, but it is facing rising opposition from investors with 5.3% shareholder Van Eck, Gold Fields’ second largest stockholder, recently voicing a negative opinion of the transaction.
Van Eck also owns 11.25% of Yamana Gold.
Commenting principally about gold junior companies, Joe Foster, a portfolio manager of the firm’s gold fund, said in a note that the Gold Fields share-based transaction was “another poorly structured deal”.
Gold Fields offered 0.6 of its shares for each Yamana share representing a premium of 33.8% to the 10-day volume-weighted average price of Yamana’s Shares of $5.201 on May 27.
Said Foster: “The premium nearly evaporated by the end of heavy trading on May 31, as Gold Fields had fallen 23.4% and Yamana Gold was up just 3.7%,” said Foster in his appraisal.
“In many cases, the most value can be created through a merger of equals (MOE), also known as a ‘no-premium deal’.
“The reason for the outperformance is that MOE’s are judged on fundamentals, whereas premiums invite arbitrageurs and speculators that can lead to short selling, stock overhangs, and selling pressure long after the deal closes,” said Foster.
Although his comments do not necessarily indicate Van Eck will not support Gold Fields’ deal, it doesn’t bode well for the South African miner.
Last week Redwheel, a 3% shareholder in Gold Fields, published a letter in which it described the decline in the value of Gold Fields’ shares post the deal as evidence the market thought it “a serious error”.
“While we acknowledge GFI’s (Gold Fields’) desire to secure long term production growth, we believe that the takeover of AUY (Yamana) is both too expensive and not guaranteed to deliver production growth and profitability,” it said in the letter.
All Weather CEO Shane Watkins said that: “After two weeks of frantic lobbying, Gold Fields management still do not seem to have convinced shareholders that this is a good deal for the company,” he told BusinessLive.
Watkins added that Gold Fields had other alternatives in order to grow its gold production “… over and above overpaying for another company”.
Gold Fields production was to have peaked at 2.8 million ounces around 2027 before declining steeply to about two million ounces a year.
In buying Yamana, it aims to create a gold producer with combined output of 3.2 million ounces of gold a year, making it the world’s fourth largest gold producer. Once it had commissioned its $860m Salares North mine in Chile, Gold Fields then stands to become the third largest gold producer.
The share is currently trading 20% off its May 31 level.
