Gold Fields’ Yamana bid hangs in balance after analysts mixed on souped-up offer

Chris Griffith, CEO, Gold Fields

GOLD Fields’ bid to win shareholder approval for the all-share takeover of Yamana Gold hangs in the balance after the group sought to win over investors with a souped-up proposal on Monday highlighting deal synergies.

About three weeks after unveiling the bid, which Gold Fields said would propel the combined unit to the top three or four of gold producers by volume, CEO Chris Griffith promised shareholders a higher dividend payout and a Toronto listing.

He also rolled out his firm’s plans to add value to Yamana’s projects which would maintain gold production at well above 3.2 million ounces for the forseeable future.

Griffith added that the Yamana transaction would be cheaper than Gold Fields undertaking smaller, ‘bolt-on’ deals. The group’s production increases to about 2.7/2.8 million ounces by about 2025 but then declines to around two million oz by 2030.

“While we appreciate the additional details Gold Fields’ management provided … the ability to unlock significant value in the near-term remains limited in our opinion,” said Raj Ray, an analyst for BMO Capital Markets.

“In addition, while the enhanced dividend policy is incrementally positive, we are not convinced whether the additional 1% yield in 2023 adequately incentivise Gold Fields shareholders for the significant near-term dilution,” he added.

In terms of its improved dividend payout, Gold Fields said it would increase its payout ratio to between 30% to 45% of normalised earnings compared to its current 25% to 35% payout ratio. For the 2023 financial year, the first of the combined unit’s, the payout would be at the higher end.

Arnold van Graan, an analyst for Nedbank Securities described the transaction was “adding some sprinkles”, but added he thought Gold Fields shareholders ought to approve it owing to the risk of a further derating of the share.

Gold Fields proposed a ratio of 0.6 of its shares for each Yamana share. At the time of the deal unveiling, on May 31, the value of the deal was nearly $7bn.

“We continue to believe that it is best to take the deal than vote it down,” Van Graan said in a note. “Voting down the deal would not see Gold Fields rerate and without a deal, we see the stock continuing to derate over time once production starts to come off after Salares Norte has peaked,” he added.

Salares Norte is Gold Fields’ new project in Chile which, if the Yamana takeover was approved, would take the combined group to third in global gold production rankings.

Griffith told the Financial Mail today that he didn’t know if shareholders would approve his proposal. “We haven’t asked that question. We don’t want to force them to make a decision,” he said.

“The only thing we’ve asked them is to give them an opportunity to talk to us if they’re not over the line. You don’t have to make your mind up now. We are not voting until October.”

Shareholders are currently scheduled to vote on the takeover proposal on October 12 with circulars due for posting in the second week of September. For it to fly, Gold Fields needs 75% of its shareholders to support the deal; while for its part, Yamana Gold needs just two-thirds of total shareholder approval.

Analysts at RMB Morgan Stanley said whilst Gold Fields’ proposed higher dividend payout avoided dividend dilution post the Yamana transaction, dilution still occurred at the share earnings level. It also had reservations on the timing of the deal although it provided Griffith with some hope.

“While Gold Fields’ commentary does not clarify why now is the correct time … we do ascribe to the notion that a dearth of projects/gold discoveries and a relatively short life of mine in the gold industry could result in a scramble for assets and potentially bid up the price of remaining mines/projects/companies with greater-than-average reserve-life and pipelines,” it said.

In 2021 alone, 70% of all deals involving the world’s 40 largest companies were in gold, said the Financial Mail citing a report by PwC. “We expect gold deals to continue as larger companies look to expand their portfolios and the middle tier looks to consolidate,” it said.