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Gold Fields CEO Chris Griffith joins Yahoo Finance Live to discuss acquisition of Yamana, mining sustainability, commodities, interest rate hikes, inflation, and the outlook for the gold market.
- As gold prices slip over the past few months, global gold miner Gold Fields is trying to win over investors in a proposed acquisition for Yamana Gold. The current value of that deal, about $6.7 billion. Joining us now to discuss is Goldf Field CEO, Chris Griffith.
Chris, thank you for being here. It looks like maybe you've gained some more traction for this deal in more recent days. Initially, we saw some investors push back against what they said was a high premium for Yamana Gold. Talk us through why you think they're worth it in terms of what they're going to add to your business.
CHRIS GRIFFITH: Thanks very much for the opportunity. I think that the position that Gold Fields finds itself in is in a very, very strong position after, I think, a number of years of very successful execution and strategy. We still have a future growth of about 20% ahead of us over the next three years.
But thereafter, the production of Gold Fields starts declining. We think this is a great time for us to start thinking now about the future in both replacement and growth of the company's assets. And so when we looked at both options to bolt on to our business or other companies, we kept coming back to Yamana, which ticked many of the boxes that we think make a whole range of really good sense to our business. They bolster areas of, for example, South America that we operate, but we don't have sufficient scale. And the assets are both complementary and expansionary and they help us to replace our declining profile.
So when we looked at Yamana, we think that even the base case, our management base case, after seven months of due diligence, we think that we can see both the premium that we're paying and very significant upside. So the assets make industrial logic, they suit our strategy, they tick many of the boxes, and they add significant value on the upside for what we can see in the Yamana assets.
So overall, we think this is a great opportunity for us. We think that this is probably a good time to do the deal. And in addition to that, yes, we saw a big reduction in the share price on the first couple of days, given that the market in gold in particular doesn't like premium deals. But the fact is that they were trading at a discount to P/NAV, so we needed to pay some premium for it. But certainly not on the value that we can see in the upside.
Over the last couple of weeks, we've started seeing that discount to the market reduced. And I think now that we're down to about 8% discount to the market. So I think we are starting to see more shareholders supporting the deal. I think we're not quite over the line yet and we've still got a bit of work to do.
- Chris, we've also seen a push for more sustainability in mining. How would that change some of the operations for either Gold Fields or even for Yamana post acquisition, if it fully completes.
CHRIS GRIFFITH: Yeah. Certainly, one of the things that we were looking for, given Gold Fields' historic track record of having a very, very strong position and certainly leading many of the gold peers, we didn't want to acquire another peer, gold mining company, that was going to take us backwards on ESG. So we've got a very, very strong ESG credentials and likewise, so does Yamana. So we're going to see, I think, two companies put together that will not only create enormous amounts of value for the combined company, but also is going to be progressive in terms of our ESG journey.
- Chris, I have to ask you more broadly about the gold market as well because we were just talking this morning. I keep referring back to the monthly Bank of America fund manager survey, which showed an awful lot of pessimism, very dramatic levels of pessimism out there. You would think, at a time like this, people would be buying gold hand over fist. And yet that is not happening. What's going on here?
CHRIS GRIFFITH: I think it's got to do with the raising of interest rates. I mean, that generally is what we're seeing in this environment, where central banks are pushing so strongly on raising interest to raising rates. We are likely to see that for a period of time. And that's the reason why, of course, we're seeing such a strong US dollar. So as funds are moving into the US dollar, as they're getting yield on the currency, that's why you're seeing a risk-off on gold.
But given that it doesn't look like inflation is going anywhere any time soon, given the pessimism that you've just spoken to, I think we remain very optimistic that as sort of central banks have to, at some point in time, slow down the increasing rates, that you're likely to see the gold price start rising again as this very negative environment that you see, that you speak of, is actually what is really good for gold. So I think it's a temporary period of reducing gold price. But you're likely to see that come back in the not too distant future, in our view.
- Chris, we in the financial media love numbers, love targets. I'm just curious if you have a target for gold by the end of the year, as you see that expected recovery?
CHRIS GRIFFITH: Yeah, we don't have a target. I mean, of course, we try to manage our business for long term gold prices to make sure that there's absolutely no chance of our business being in trouble. So we want to make sure that we can manage our business through the cycle of long term gold prices. So we don't know where the gold is going to be by year end. My expectation personally is that it's going to be closer to $1,800. But, you know, it's very, very difficult to call that at the moment. And I think it will be a brave person to call the gold price or the dollar price.
I mean, it is, of course, helping some of the commodities or some of the currencies in the countries in which we operate, where we're seeing weaker currencies. But overall, I think our business is in good shape. Irrespective of the gold price, it's been strong over the course of the year. So I think our earnings in the first half of this year are going to be strong. But what it looks like in the second half I think is way too early to tell. We remain optimistic about the strength of our business. And therefore, that we're very well positioned for the Yamana acquisition.
- Thanks so much, Chris Griffith, Gold Fields CEO. We're going to be staying tuned for any more details coming around the acquisition. Appreciate it.
