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One of the things which even the more disapproving of analysts remarked on when Gold Fields pursued its takeover bid for Canada's Yamana was that there clearly weren't any other suitors for the Canadian miner. Now all of a sudden one has belatedly emerged, with precious metals miners Agnico Eagle and Pan American launching a $4.8bn rival bid for Yamana.
Agnico Eagle is joint owner with Yamana of Canadian Malartic, which operates Canada's largest open pit mine and is the richest of the assets in Yamana's portfolio. It has long sought to own all of the mine — so the Agnico offer did not come entirely from nowhere, even if it was unexpected. And rather bizarrely, Yamana's board, which had unanimously determined that the Gold Fields transaction was in the best interests of Yamana and recommended thatshareholders vote in favour, now says the joint Agnico-Pan American offer is the superior one.
What happens next will be an interesting reflection on what's happening in the global gold industry as well as on how global investors view SA mining companies in general and Gold Fields in particular.
Gold Fields' offer was all in shares and at the time of its launch was worth $6.7bn. The decline in its share since then reduced the theoretical value of the bid but after Friday's 15% jump the bid's value almost equals the joint bid. The difference is that Agnico and Pan American have included $1bn of cash in their bid. One can't help wondering if the difference, too, is that Agnico is Toronto-based whereas Gold Fields still has a Johannesburg postal address, even if its portfolio is global.
Gold Fields' board, quite rightly, has unanimously declined to sweeten its offer. It emphasised this week that it still believed its offer was strategically and financially superior to the rival joint bid.
Some of its large shareholders already did not like the deal because of the premium that was being offered — most notably international fund manager Van Eck, which is the largest shareholder in Yamana and one of the largest in Gold Fields. So it would not make any sense to up the premium even further. Nor would it make sense to sweeten it with cash, however much Yamana's shareholders might want to cash in on their assets. Gold Fields CEO Chris Griffith has made it clear too that the all-share offer is the appropriate way for his company to do the deal, buffering it against market moves and maintaining its capital discipline.
An all share deal would mean Gold Fields would not have burdened the merged group with excessive debt. That would give it optionality, so it could pick and choose within its portfolio and make the most of opportunities to expand in the future. It would put a merged group in a strong position in a global environment in which miners are set to consolidate as input costs rise and commodity prices come off.
In an important sense, the rival bid has vindicated Griffith's decision to go after Yamana, whose assets have now been independently valued at $6.8bn-$8bn. But Griffith's pitch has been that Yamana presents the best option to provide Gold Fields with the “big transformational deal” that will give it the longer-term growth pipeline it will need beyond the next three to four years. There are other options, he has said, including smaller acquisitions. But none work as well as Yamana to advance Gold Fields' ambitions — not only to expand its output in the medium to long term but also to add Canada, with its attractive mining environment, to the list of jurisdictions in which it operates.
So the question is what happens next. Gold Fields has until Friday to up its offer, should it choose to do so. If it does not, and Yamana's board decides to opt for the rival bid, it will have to pay Gold Fields a $300m “break fee”. But if the Canadians stay on the fence, Yamana shareholders vote on November 21 on the existing Gold Fields offer. Even if they were to accept it Gold Fields' own shareholders would still have to vote 75% in favour of the deal on November 22 for it to go ahead.
If none of that happens the Gold Fields bid is dead. Griffith would have to go back to the drawing board. And Yamana's shareholders would have to hope they picked the better suitor for their assets.
