A worker cleans gold bars at South Africa's Gold Fields South Deep mine in Westonaria, 45 km south-west of Johannesburg, South Africa on March 9, 2017.Siphiwe Sibeko/Reuters
A summer-long campaign and hefty dividend increase are winning over investors ahead of critical shareholder votes on Gold Fields Ltd.’s GFI-N planned US$6.7-billion takeover of Yamana Gold Inc. YRI-T, according to chief executives for the two companies.
The CEOs of Gold Fields, based in Johannesburg, and Toronto-based Yamana spent recent weeks pitching fund managers in South Africa, Europe and North America on the merits of their planned union, after investors initially reacted poorly to a deal that would create the world’s fourth-largest gold miner.
Gold Fields’s stock price dropped 23 per cent the day after the acquisition was announced in May, on concerns the South African company was overpaying. Gold Fields needs at least 75 per cent of investors to vote in favour of the takeover at a meeting expected this fall, while Yamana requires approval from two-thirds of its shareholders.
“We’re making encouraging progress,” said Gold Fields CEO Chris Griffith in an interview with Reuters on Thursday after the release of financial results. “I think most of the shareholders are starting to understand the rationale for the deal, the strategy of the company, why Yamana, why the price.”
Gold Fields’s all-stock offer for Yamana valued the Canadian company at a 34-per-cent premium to where the stock was trading prior to the offer. In an interview with The Globe and Mail, Yamana CEO Peter Marrone said investors are recognizing why the price is fair to both companies, and how Gold Fields will avoid increases in costs and capital spending that plagued past mining mergers.
Gold Fields sweetens dividend pledge in pursuit of Canadian miner Yamana
Yamana has a number of projects that are either being expanded, including its flagship Canadian Malartic mine in Quebec, or being brought into production, such as the Mara mine in Argentina. Mr. Marrone said investors had misplaced concerns that Gold Fields would need to devote much of its future cash flow to these projects, rather than returning capital to shareholders through dividend increases or share buybacks.
In reality, Mr. Marrone said cash generated from Yamana assets will cover these development costs, meaning Gold Fields can afford to use its cash to increase dividends.
On Thursday, Gold Fields announced it generated US$518-million of free cash flow in the first six months of the year, up 30 per cent from last year. The company increased its dividend by 43 per cent. Gold Fields, which has operations in Africa, Australia and South America, reported a 29-per-cent increase in profit, driven by higher metal prices and increased production.
In July, Gold Fields set a new dividend policy, pledging to hand out 30 to 45 per cent of its profit each year to investors, and targeting the top end of that range in 2023. The Yamana acquisition is expected to close by the end of November.
Joining forces with Gold Fields is expected to speed up development of Yamana projects and increase mine production, which is also justification for the premium price, Mr. Marrone said. For example, the South African company has expertise in operating mines deep underground that will be used to transform Canadian Malartic, Canada’s largest gold mine, which is being converted from an open pit to a project with a 1.8 kilometre-deep shaft.
Yamana owns a 50-per-cent stake in the Canadian Malartic mines; its partner is Toronto-based Agnico Eagle Mines Ltd AEM-T.
The next stage in the marketing campaign will see Gold Fields and Yamana send shareholders a circular that outlines the rationale for the transaction by early October, ahead of votes on the deal. In mid-September, both CEOs are scheduled to make investor presentations at the Denver Gold Forum, a major industry event.
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Andrew Willis