Gold Fields share price jumps on termination of Yamana deal

Gold Fields will bank a $300 million (R5.3 billion) termination fee within the next few days, after Yamana Gold’s board rejected its takeover bid in favour of a rival $4.8 billion cash-and-shares bid from Pan American Silver Corp and Agnico Eagle Mines.

Half of the $300 million termination fee is to be paid by Pan American.

Gold Fields originally bid $6.7 billion in an all-share transaction for Yamana in May, though that valuation dropped to around $4 billion as the value of Gold Fields shares declined, in large part due to waning enthusiasm for the gold sector.

“We’re disappointed and continue to feel we put forward a compelling deal that would have been better for both sets of shareholders,” said Gold Fields CEO Chris Griffith in a press briefing on Wednesday.

The Gold Fields share price jumped to $9.85 from $8.70 on the news of the cancelled deal, suggesting shareholders were relieved at the news. This follows a drop in the share price when the bid was first announced in May.

Read/listen: Gold Fields buys Canadian Yamana Gold for R100bn

The company’s shares are up more than 30% over the last week, lofted in part by short sellers unwinding positions and more positive sentiment filtering through to the gold sector.

Yamana’s share price also benefitted from the announcement, climbing more than 25% in the last week.

Gold Fields has nine operating mines in Australia, Peru, South Africa and West Africa (including the Asanko Joint Venture) and one project in Chile.

Had the deal gone through, it would have added one million ounces from Yamana to Gold Fields’s 2.4 million ounces a year, making it a top-tier gold giant, with a geographically diverse spread of assets.

The Yamana acquisition would also have given Gold Fields a sizeable share of the MARA gold and copper project in Argentina, which is valued at roughly $1 billion. The company has a strong footprint in Canadian gold mining, as well as in Brazil and Chile.

Stuck to its guns

Griffith says he is pleased Gold Fields stuck to its disciplined financial strategy and refused to counter the offer from Pan American Silver Corp and Agnico Eagle Mines.

Read: Gold Fields rules out raising Yamana offer after rival bid

Gold Fields’s existing portfolio of “world class operations and development projects will continue to deliver near-term and long-term value to our shareholders, and provide a strong base from which to consider future capital allocation options,” it says in a statement.

“These decisions will continue to be assessed under our robust capital allocation framework, and against our vision to be the preferred gold mining company, delivering sustainable, superior value to shareholders.”

Gold Fields drew some criticism for its bid being at a 30% premium to net asset value for Yamana, though Griffith defends this, saying an independent valuation of Yamana was in line with the company’s own valuation, and that there was sufficient upside potential to justify the bid price.

The gold price dropped from $2 087/oz in March to $1 715/oz this week, while mining costs have been soaring, placing pressure on producers to find new low-cost assets and diversify geographically.

Agnico, one of the presumptive owners of Yamana, recently diversified out of gold into a copper-zinc project in Mexico, providing some diversification from gold.

For now, it’s back to the drawing board for Gold Fields. Griffith says the company has several other assets under consideration, and does not rule out the possibility of securing some Yamana assets at some point in the future.

Listen: Deal Leaders International CEO Andrew Bahlmann and Moneyweb’s Suren Naidoo discuss Gold Fields losing its bid for Yamana Gold (read the transcript)

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