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Gold producer Yamana was at a crossroads. The Toronto-based company wanted to grow quickly to maximize its market valuation. Internal growth would have taken a long time. The offer to buy Gold Fields came in conjunction with the company's strategy meeting held in December.
This is how the genesis of the transaction between the South African Gold Fields and the Canadian Yamana Gold, co-owner of the Canadian Malartic mine in Abitibi, the largest open-pit gold mine in the country, was written.
"Gold Fields contacted us 5 or 6 months ago," explained Daniel Racine, CEO of Yamana Gold, over the phone. Contacts were then established with other companies. But it was Gold Fields who showed the most consideration," continues the Yamana boss.
Gold Fields will acquire all of the outstanding common shares of Yamana, at a ratio of 0.6 common shares of Gold Fields for each common share of Yamana. Based on Yamana Gold's New York Stock Exchange share price of US$5.20 on Friday, May 27, and Gold Fields' American Depositary (ADR) share price of US$11.59 , the value of the transaction amounts to 6.7 billion US.
Unlike Agnico-Eagle's acquisition of Kirkland Lake last February, this time the purchase price includes a 33.8% premium to the 10-day volume-weighted average trading price of Yamana.
"It was out of the question at Yamana to accept an offer without a premium, maintains Daniel Racine. In such a case, I guarantee you that the discussions would not have lasted long.
"Even though Yamana's valuation has improved in the past year. We understand that the company is still undervalued by the market because of its size, says Mr. Racine. Yamana records an annual production of slightly less than 1 million ounces of gold.
Major producers like Newmont, Barrick and Agnico-Eagle produce more than 3 million ounces annually and sell at a premium to mid-sized producers. The new Gold Fields will join this select club.
On a pro forma basis, the new Gold Fields owns 14 mines across 4 continents. It will produce 4 million ounces of gold per year. Its reserves will exceed 81 million ounces.
According to Mr. Racine, the change in ownership will not change anything for Yamana's assets in Quebec, be it Canadian Malartic, the Odyssey underground mine or the Wasamac project in Rouyn-Noranda.
"Gold Fields will keep our corporate office in Rouyn and our community office in the Evain neighborhood open," he said.
For Mr. Racine, on a personal level, the transaction changes things quite a bit. He will leave the company after the integration period with compensation in his pocket. "At 59, I'm too young to stop working. I know Abitibi well," says the man who worked for gold mining company Agnico-Eagle for 25 years and who joined the Canadian Malartic team in 2014.
