GOLD Fields is sticking by its fixed share ratio offer for Yamana Gold, the company’s CEO Chris Griffith today. “The bid is not changing,” he said. “We have engaged with a lot of shareholders on the offer which we think makes sense.”
Gold Fields intends to provide the market with a detailed update on the transaction in about two weeks’ time, he said. Shares in the company are about 18.7% down in the last month valuing the company at R137bn. Yamana shares are 3.7% lower over that period.
Shares in Gold Fields plummeted 21% after unveiling a takeover offer for Yamana Gold, which operates in Brazil, Chile and Argentina as well as Canada. Investors said that while they saw the logic in the deal, it was too expensive.
The deal, unveiled on May 31, offered Yamana shareholders 0.6 Gold Fields shares for each Yamana share. It requires a majority of 75% Gold Fields shareholders at an extraordinary general meeting planned for September and 66.66% of Yamana shareholder support.
If approved by shareholders, the combined company will have production of about 3.2 million ounces of gold a year (885,000 oz/year from Yamana) with projects for expansion in Canada and Brazil.
Earlier this month, Redwheel – which owns about 3% of Gold Fields – said the South Africans ought to abandon the offer and focus on developing its own organic growth options. This followed a number of analyst appraisals which said the proposed transaction was dilutive to Gold Fields shareholders.
On June 23, Morgan Stanley said that the transaction was dilutive for Gold Fields shareholders from day one. It added that the premium involved in the share ratio implied a high hurdle rate.
“Should the gold price fall below $1,718/oz, the combined company would have to successfully develop the conceptual projects to offset the premium paid, where we have little in the way of quantitative data,” the bank said.
“Similarly, should the gold price fall below $1,545/oz, it would likely have to develop Mara and/or early-stage projects in an accretive manner to further offset the premium acquisition price.”
The Mara (Minera Alumbrera) expansion – an Argentine operation – accounts for roughly 70% of Yamana’s reserve base, but at a capital cost of about $2.4bn is expected to absorb a fair portion of Yamana’s future cash flow.
“The proposed acquisition premium sets a relatively high hurdle for value creation, with a low margin for error on life-of-mine extensions, ramp-up of the relatively deep mechanised Odyssey mine (somewhat similar to South Deep), ramp-up of Wasamac and mill expansions,” said Morgan Stanley.