Gold Fields, Yamana deal set to create world's No. 4 mining giant
South Africa-based Gold Fields Ltd. on Tuesday announced a $6.7-billion acquisition of Toronto-based Yamana Gold Inc., a combination that would turn two senior bullion miners into the world's fourth largest producer.
The proposed all-stock transaction would create a company with headquarters in Johannesburg and 10 precious metal mines, primarily gold, spread across Australia, Brazil, Chile, Canada, Ghana and South Africa.
Under the terms of the deal, Yamana shares are valued at 0.6 of a Gold Fields share, implying a 33.8-per-cent premium to the 10-day volume-weighted average price of Yamana's shares of US$5.20. Gold Fields shareholders would own 61 per cent of the combined entity while Yamana shareholders would control 39 per cent.
On Tuesday morning, Yamana shares rose 7.8 per cent to US$5.53 on the New York Stock Exchange while Gold Fields share plunged 21.72 per cent to US$9.56.
“The rationale for the deal is consistent with other gold M&A in recent years, namely achieving scale for relevance to investors, as well as geographic diversification,” Fahad Tariq, a Credit Suisse analyst, wrote Tuesday.
Tariq added that he expects Yamana shares will continue to trade higher given the high premium to the merger in a sector where many deals have contained no premium.
“Yes, there is some shortterm dilution as you pay a premium for investing in a much more significant value that comes with this combination of assets,” Chris Griffith, chief executive of Gold Fields, told analysts on a call Tuesday morning.
The Yamana- Gold Fields combination ties into a yearslong trend toward consolidation in the gold industry, though at a higher premium than other deals from the recent past.
Last year, Agnico Eagle Mines Ltd. and Kirkland Lake Gold Ltd., both Toronto-based miners with operations centred in Canada, announced a $13.5-billion “merger of equals” that created the world's third largest miner. Terms set out that Kirkland shares would be exchanged for Agnico shares at a roughly one-per-cent premium.
Gold Fields and Yamana expect to achieve US$40 million in annual synergies as a result of the merger, and think it would create strong growth potential.
Yamana had not responded to requests for comment by the time of publication.