A SUREFIRE means of merger & acquisition (M&A) success is to pay cash — and barrel-loads of it. Easier said than done. Mining shareholders, including those of Gold Fields, want generous dividends before even incurring the cost of extending reserves, never mind fancy deals.
So, it will be interesting to see how Gold Fields progresses in its $27bn tilt for Northern Star Resources, Australia’s largest gold miner. Northern Star last month rejected the leaked cash-and-shares offer, pitched at a 22% premium to its September 11 closing price.
The pressure is on, especially as Gold Fields has a recent history of a blockbuster M&A offer gone haywire. In 2022, it lost Yamana Gold to a joint $4.8bn bid from Agnico Eagle Mines and Pan American Silver, which included $1bn cash. Gold Fields had offered a 31%–34% premium, but no cash.
This time, however, Gold Fields has added cash — A$7.25 per Northern Star share plus 0.3125 of a Gold Fields share. But is that enough?
Probably not, considering recent history. Newmont Corporation paid a 30.4% premium for Newcrest in 2023; AngloGold Ashanti paid a 37% premium for Centamin a year later. Gold Fields’ offer is “light for a deal of this size”, says Nedbank Securities analyst Arnold van Graan. John Ayoub, a portfolio manager at Wilson Asset Management, told Reuters the bid “feels opportunistic”.
Can Gold Fields sweeten the deal? There’s little wriggle room. The $27bn is not far from its market cap of $31bn: its shares are down 24% in the last 30 days. “We obviously think we’ve put a really good and compelling offer on the table at the moment,” Gold Fields CFO Alex Dall said in an interview. “We’d like to continue to engage with their board.”
Elliott Investment Management, which holds 6.24% of Northern Star, could help. The activist fund has reportedly urged Northern Star to consider offers, but hasn’t endorsed Gold Fields’ bid. Behind this is Northern Star’s underperformance: three missed production guidances, followed by the departure of CEO Stuart Tonkin.
So it’s all to play for. But why is Gold Fields playing at all? The company more than doubled its free cash flow in the six months ended June, and pledged $500m more in dividends and buybacks. Its recently commissioned Chilean mine, Salares Norte, shot the lights out, generating half of that cash.
The answer, to mash up Bob Dylan with Harold Macmillan, is blowing in the winds of Africa. Ghana is yet to renew Gold Fields’ licence for Tarkwa, which accounted for 19.5% of its 2.44-million ounces annual production last year. It submitted a commercial proposal in July. Details are unknown — it most likely raised the government’s free-carry stake — and there’s been no response.
There’s regulatory risk too: an environmental permit is outstanding for the C$1.6bn–C$1.8bn Windfall project in Canada. A delay would ratchet the capital cost straight up to C$2bn, according to Scotiabank’s Tanya Jakusconek. Add an adverse Tarkwa outcome and Gold Fields risks a plateau in production until after 2030.
Gold Fields’ shares have derated. The best way to revive them is to reliably meet guidance, cut debt and provide growth. Enter Northern Star. Gold Fields could cut the dross — $4bn of noncore mines have been identified — keep the best, and become the world’s second-largest gold producer.
But it will almost certainly take a better offer. “Gold Fields has asked our shareholders to take nearly three-quarters of the consideration in Gold Fields stock, which carries a meaningfully higher jurisdictional risk profile than the exposure they hold today,” said Northern Star chair Michael Chaney shortly after the offer was made public.
Chaney says there have been multiple approaches this year. But Dall counters: “We’re not aware of any other offers or bids in the mix.” Either way, Gold Fields is unlikely to get Northern Star on the cheap.
Gold Fields shareholders quailed at outbidding rivals for Yamana. Might they do the same now? “We were engaging board to board before the leak happened, so we really haven’t had a chance to canvass shareholders ahead of this,” says Dall.
Steve Friedman of investment bank UBS says: “We see price escalation as the key risk for Gold Fields shareholders. While the current proposal appears financially manageable … the key question is whether Gold Fields is buying Northern Star’s recovery and development upside or paying shareholders for that upside upfront.”
This story first appeared on the FM. The FM and Miningmx are part of the Financial Mail Group.
