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LAWRIE WILLIAMS: Gold Fields to acquire Yamana in next big gold mining consolidation

South Africa used to dominate world gold production with its plethora of Wiwatersrand and Orange Free State gold mining operations.  Now the remaining parts of its former gold mining glory, in the form of what used to be the  vestiges of its two largest gold mining companies, Anglogold Ashanti out of the Anglo American stable, and Gold Fields – the remnant of Consolidated Gold Fields, are currently resurrecting some of their former dominance in becoming two of the world’s top four gold mining companies.  However, it is not their South African operations which are leading this charge – far from it.  It is their expansions internationally that has put them in this position.

Gold Fields is the latest to really make a move in this direction, with an all-share offer for Canada’s Yamana, valued at around US$6.7 billion, which would propel the merged company into being the world’s No. 4 gold miner, after Newmont, Barrick and Anglogold, despite having spun off most of its major South African gold mining assets into Sibanye in 2012.   Prior to the Yamana acquisition proposal Gold Fields was the world’s 7th largest gold miner, while Yamana was 21st.

There had been much speculation that there were likely to be some major consolidations in the upper tiers of the global gold mining sector as demonstrated by the relatively recent mergers of Newmont and Goldcorp, closely following that of Barrick and Randgold, consolidating these combined companies into the world’s top two gold producers by a substantial margin.  Kinross has often been seen as a possible acquisition target among the Tier 1 gold miners.  Maybe its exit from its Russian operations will stimulate this.

In South Africa, Gold Fields had only retained the South Deep property southeast of Johannesburg – a huge, but difficult-to-mine gold resource.  This was formerly the deeper sections of the Western Areas and Elsburg properties, originally owned by JCI, on which this writer worked as an engineer back in the late 1960s.  It has one of the largest undeveloped global gold resources but presents considerable technical extraction challenges which so far Gold Fields has been unable to conquer successfully.

Together with its own international operations, the merger with Yamana, assuming it goes ahead, will give Gold Fields gold mining operations in North America, Latin America, West Africa, South Africa and Australia totalling around 90 tonnes a year as well as a considerable amount of silver.  As usual, the acquisition is subject to shareholder and regulatory approvals.  The acquisition terms have been unanimously recommended by the Yamana Board.  The merged company will be headquartered in Johannesburg, but with major regional offices in its principal areas of activity.

The acquisition terms are for Yamana shareholders to receive 0.6 of a new Gold Fields share for each Yamana share held, implying the $6.7 billion valuation.  This represents a premium of 34% to the 10-day volume weighted average traded price of Yamana shares on the New York Stock Exchange of USD5.20 on Friday last week, based on Gold Fields American depositary shares' 10-day average of $11.59.  Again, assuming the acquisition meets all regulatory approvals, Gold Fields and Yamana shareholders will own about 61% and 39% of the combined group, respectively.

Commenting on the proposed acquisition, Chris Griffifth, Gold Fields’ CEO said on Friday

“Today we are announcing the acquisition by Gold Fields of Yamana, two companies with complementary portfolios, cultures and strategic priorities. The result is a combination with much greater capacity and potential value than the sum of its parts. Each company brings with it a unique set of skills and geological knowledge, enabling the Combined Group to enhance its assets more efficiently over the long-term than they could as separate companies.

“Today’s announcement is the result of a robust and extensive process carried out by the Gold Fields’ Board and management team to identify the optimum solution to support our revised strategy. Yamana’s high-quality asset base in the Americas and strong development and exploration pipeline will further diversify the geography of our portfolio, creating a top-4 global gold major, well positioned to deliver long-term value creation. Combined, Gold Fields will boast an industry leading portfolio of high-quality, long-life flagship assets that span some of the world’s most established gold mining jurisdictions.

“Like Gold Fields, Yamana is focused on operational delivery, disciplined capital allocation, portfolio management, maximising shareholder returns, and upholding leading sustainability, safety and ESG performance. These shared priorities are foundational to this Transaction.”

In response, Peter Marrone, the Yamana Executive Chairman, noted:

“This is an outstanding opportunity for our shareholders, employees and the local communities in which we operate throughout the Americas. The Transaction delivers an immediate and compelling premium for Yamana Shareholders, reflecting the inherent fair value of our assets, while also offering an opportunity to benefit from the creation of a new global gold producer with an attractive value proposition.

“We saw significant merit in pursuing discussions with Gold Fields because of the quality of their company on a standalone basis and because of the quality a combination would create. After many months of discussions and conduct of diligence, including site diligence, over a period beginning late last year, we felt even more certain in our premise that Gold Fields was a high-quality standalone company and the company resulting from the combination would be even better. We were also encouraged and influenced by Gold Fields’ conclusions, after their extensive diligence, of what was our inherent, fair value.

“The combination of Yamana and Gold Fields creates a world-class, globally diversified company with regional relevance across premier, rules-based mining jurisdictions that is underpinned by low cost, long life mines. The combined entity will be well positioned to deliver long-term value creation with its enhanced scale, management strength and improved capital markets profile. Yamana and Gold Fields also have complementary corporate cultures and values with an ESG-first operating model with a strong focus on supporting host communities and environmental stewardship.

“We believe that Yamana’s shareholders’ ownership of the Combined Group reflects the fair value of the contribution that each company brings.”

31 May 2022 | Categories: Gold, Silver, Mining

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