Gold Fields-Yamana deal: Shareholders warm to creation of gold giant

Gold Fields has been operating for more than 130 years and developed many of the deep level mining techniques employed by companies like Yamana Gold, which is now the subject of a $6.7 billion (R123 billion) takeover bid by the former.

That expertise will come in handy as Yamana’s Canadian Malartic will transition from Canada’s largest open pit gold mine into the country’s largest underground gold mine, with a life of mine extending past 2040.

Expanding on the rationale behind the deal, first announced in May, Gold Fields CEO Chris Griffith told the media on Monday that despite some initial opposition to the transactions, shareholders are warming to it now that they have had time to digest its implications.

The deal goes to a shareholder vote on 21 and 22 November, and requires 75% approval from Gold Fields shareholders and 66.67% from Yamana shareholders.

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Production

Yamana produces about one million ounces of gold and silver (88% of revenue comes from gold), from five mines in four countries. It is currently on a growth path which will take annual production to 1.5 million ounces, most of that coming from brownfields projects.

Gold Fields has nine operating mines in Australia, Peru, South Africa and West Africa (including the Asanko Joint Venture) and one project in Chile.

Combining its annual production of about 2.4 million ounces (m ozs) to Yamana’s one million ounces will create a top tier gold producer with an interesting spread of assets across the Americas, Africa and Australia.

Good fit

Yamana is a suitable fit for Gold Fields, with complementary assets and grades, but what is particularly attractive is the deeper exposure this deal gives Gold Fields to South America, and a solid footprint in Canada.

Yamana owns the Jacobina mine in Brazil, which will expand production by 50% to 270 000 ozs per annum over the coming years. Another gem in the Yamana portfolio is El Peñón mine in Chile, now 24 years old and still expanding, with a decade or more of life left in it.

Yamana’s majority stake in the MARA gold and copper project in Argentina is valued at roughly $1 billion. The mine has an estimated life of 28 years with some 12 billion pounds of proven and probable copper reserves and 7.4m ozs of proven and probable gold reserves.

Both companies are already on major expansion paths …

Gold Fields is ramping up its $860 million Salares Norte mine in Chile which should bring output to about 2.8m ozs a year.

It also paid $145 million for a 45% stake in the Asanko mine in Ghana, and a further $347 million in Ghana’s Damang reinvestment project. It paid Au$350 million (R4.2 billion) for 50% of the Gruyere gold project in Western Australia and a further Au$329 million (R4 billion) to build the mine.

“This deal offers us quality assets at various stages of development, and [a] unique pipeline of projects going forward,” said Griffith.

Paying a premium?

Responding to questions about the 30% premium to net asset value (NAV) being paid for Yamana and whether this is excessive, Griffith said an independent valuation of Yamana was in line with the Gold Fields offer and that there was sufficient upside potential to justify the valuation.

Peter Marrone, executive chair of Yamana Gold, told Crux Investor that a NAV-to-NAV comparison was not reflected in the companies’ share prices, which is why Gold Fields was offering a premium.

“If we take their [annual output of] 2.5m ozs with our one million ozs, we become one of the elites.”

Market reaction

The share price of Gold Fields is down more than 40% since its peak in March this year, though part of this is due to the drop in gold shares generally.

Yamana’s stock price is down about 30% since April. Griffith says there is a better understanding of the deal after shareholders have been given time to digest the implications for the combined companies going forward.

“What makes this deal unique is the logic that makes it fit together,” said Griffith.

“The type of ore bodies in Yamana is replicated in some form in Gold Fields; similarly, the mining methods are replicated in both. We [are able to] bulk up in South America where we have a very light footprint. We bring 130-plus years’ experience, [a] bigger balance sheet and our operational expertise.”

Griffith says there is no link between the Yamana deal and the recent resignation of three executive vice presidents – Brett Mattison (strategy, planning and corporate development), Taryn Leishman (legal and compliance), and Avishkar Nagaser (investor relations and corporate affairs).

“All three of those executives have resigned for personal reasons and that is completely separate to the deal and the process that is underway,” said Griffith. “They’ve made outstanding contributions to the company over their tenure and the [Yamana] deal. They will continue in their positions until March 2023.”