Gold Fields’ Yamana hopes suffer body blow after shareholder expresses market doubts

GOLD Fields’ hopes to having its takeover of Yamana Gold approved sustained a body blow, according to a report by Canada’s Globe and Mail which reported today the gold firm’s 5.7% shareholder Van Eck didn’t see the logic of the deal.

“It really was unexpected, and the market didn’t, and maybe still doesn’t, understand the strategy behind the deal,” Joe Foster, portfolio manager at Van Eck told the newspaper. The deal had received “a horrible market reaction”, he said.

Van Eck owns also owns 10.6% of Yamana which makes it the largest single shareholder in both companies. Yamana shareholders will vote on Gold Fields’ $6.7bn all-share takeover offer on November 21 with the South African firm’s shareholders voting the next day.

Foster’s comments indicate he has not changed his mind since a note published on Van Eck’s website in June in which he said nil-premium merger of equals (MoE) worked better than those in which the buyer offered a large premium.

“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,” he said.

Another Gold Fields shareholder that has remained hostile to the deal is Redwheel which holds about 2.3% of the firm. Its co-head of the emerging and frontier markets John Malloy  was critical of Gold Fields taking exposure to Argentina.

“Argentina today is basically uninvestable,” he said. “The currency market is a mess. The equity market is a mess. It’s a high-risk location. Right now, companies can’t get money out of Argentina.”

About $1bn worth of the $7bn valuation imputed to Yamana Gold by CIBC, which completed an independent valuation for Gold Fields’ circular to shareholders published this week, was to MARA in Argentina, an undeveloped asset.

Chris Griffith, CEO of Gold Fields said on Monday the direction of shareholder sentiment regarding the proposed deal would become clearer in about a week.

“In the next week or two we’ll be able to start asking shareholders how they intend to vote,” said Griffith at a media briefing today following publication of the circular. “That’s because most shareholders have asked to see the circular first.”

Griffith said “all the signs are starting to point in the right direction”. However it was “a pity” that the offer – which comprises 0.6 Gold Fields shares for each Yamana share held – had coincided with a downturn in the metal prices across the board.

He acknowledged that some shareholders might be prevented from thinking long term given the fact gold was about $200/oz weaker than in May when the offer was launched. “The gold price is down 10% since start of transaction, but global equities are down 25%. So that particular market is reacting much more negatively than the gold price.

“The current market might prevent shareholders to think long term, but our business is long term and we will face many cycles. We are focused on producing gold at the low end of cost curve and returning cash to shareholders – none of that has changed.

“For that reason, we think shareholders will vote for the transaction because it has so much upside in it,” said Griffith.