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As a shareholder vote to approve or reject Gold Fields' takeover of Yamana Gold approaches, the release of a circular and independent valuation report is hoped to be the catalyst investors need to green-light the transaction next month.
For the moment, though, the jury is still very much out on whether 75% of investors will indeed vote in favour of the deal when Yamana shareholders cast their votes on 21 November and Gold Fields shareholders on the 22nd.
Some investors have been vocal about their concern over the purchase price of $6.7 billion (R124 billion), which reflects a 30% premium to Yamana's market value of $5.2 billion at the time it was announced in late May.
The circular, released on Friday, set out the deal rationale for the plan to acquire Yamana, which has five operating assets and two in development across four jurisdictions – Canada, Chile, Argentina, and Brazil.
Critically, an independent valuation report – produced for the JSE by the Canadian Imperial Bank of Commerce (CIBC) – has valued the Yamana assets at between $6.82 billion and $8 billion.
"What is confirmed by the valuation report is that we have not overpaid for these assets, and that there is substantial value still left for the combined company to unlock in the new company going forward - a very positive message that I would say for the combined shareholders of this new company," Gold Fields CEO Chris Griffith said in a press briefing on Monday.
Griffith said that while he believed the rationale for the deal had been effectively communicated to shareholders, it was difficult to gauge their thoughts on the transaction as yet, given that most investors have been waiting for the circular before making up their minds about the transaction. "Most folks have been waiting for the circular. And now that the circular is out, I think we'll have a last round of engagements with shareholders before we put it to a vote … we are hoping for the outcome to be positive," said Griffith, adding that Gold Fields would soon be able to able to start asking shareholders how they intend to vote.
Critical now are the views of independent proxy advisory firms like Glass Lewis and IS, which provide institutional investors with research and data.
Gold Fields will present to the two later in the week before they issue their report on the deal. However, Griffith said this would be "just one factor of many that get considered by shareholders in their decision to vote".
A deep dive into the big business story of the week, as well as expert analysis of markets and trends. The Gold Fields share price of R145 was flat in Monday's trade but is down 32% over the past six months and even more on the New York Stock Exchange, where Gold Fields' secondary listing trades in dollars.
Gold Fields shares took a significant hit when the Yamana deal was announced, losing some 25% value following the announcement. Still, it since has clawed back these losses if one considers that the broader market has since fallen, Griffith noted, adding that Gold Field now trades about 9% lower when compared to the market while Yamana trades about 14% higher.
"I think it's very important that you look at the share prices in context with the market," he said, further noting that Gold Fields' shareholder base has not changed materially since the announcement of the deal.
He however conceded the state of the market might influence certain shareholders.
"The gold price is down by 10%, since the start of our transaction, but the global gold equities are down by 25%. So you can see that that particular market is certainly reacting much more negatively than the gold price," Griffith said. "At some point in time, that'll change. But for shareholders – and they all hold shares for different reasons – the current market might be preventing some shareholders from thinking long term."
Bruce Williamson, mining analyst at Integral Asset Management, said the cost of developing new mines in the future would be prohibitively expensive. Added to that is a global shortage of engineering-related skills.
"You go try now and do grassroots exploration. Get through all the permitting and licensing, ensure there's water, power, roads and then find the skills. Your cheapest bet by a long way is what they did. That is, to look inside the top 10 and see if there was anything that had opportunities," he said. "That is the biggest win. Try and cost any of those new operations from the start where you didn't own and hadn't done much exploration. Man, oh man, that's going to cost you and take you just too long."
Griffith said the deal is the most compelling strategic pathway available to Gold Fields shareholders.
"As the company looks to the next phase of its strategy to create long-term value, this transaction has high quality, low-cost asset while proactively addressing systemic, strategic challenges of reserve replenishment to offset declining production and reserves, which is facing the gold industry as a whole," he said. "The complementary nature of the Yamana and Gold Fields portfolios through shared geology, mining and processing expertise, the close proximity of combined operations, and the complementary cashflow profile have true industrial logic, and it's a smart investment into longer-term value creation."
