Australia’s largest gold producer Northern Star Resources (ASX: NST) has rejected an unsolicited A$38.7-billion ($27-billion) takeover proposal from South Africa’s Gold Fields (JSE: GFI; NYSE: GFI) that would create the world’s second-biggest gold miner.
Northern Star said the conditional, “highly opportunistic” proposal, worth about A$27 a share, undervalued its portfolio and comes at an opportunistic time. About 73% of the consideration would be paid in newly issued Gold Fields shares.
“We believe there’s immense potential for value creation at Northern Star, and any transaction would need to reflect that,” John Pike, a partner at activist investor Elliott Investment Management, said in a statement. “But others clearly see the value here too, and we think the board has an obligation to engage with any serious buyer and fully evaluate the best path to deliver on that potential.”
The approach puts fresh pressure on Perth-based Northern Star after Elliott in June urged the company to conduct a strategic review that could lead to a sale. Gold Fields was among the potential buyers identified by the US hedge fund as having the scale to acquire the Australian miner.
Northern Star shares gained 7% in Sydney following news of the proposal, valuing the company at about A$34 billion ($23.8 billion). Its shares traded around A$23.47, below the A$27 implied value of Gold Fields’ offer. Gold Fields shares fell 12% in Johannesburg morning trading.
Golden scale
A combination would rank behind only Newmont among global gold producers and create Australia’s largest gold miner, with annual domestic output of about 2.4 million oz. Nearly 60% of the combined company’s production would come from Western Australia.
Gold Fields already owns four major Australian mines, including Gruyere and Granny Smith. It said a Northern Star combination had a “strong strategic rationale” and could create a “world-class pure-play senior gold producer with a compelling growth profile.”
The South African miner estimates the combination could generate as much as $5 billion in synergies and allow at least $4 billion in asset sales.
Valuation remains a key obstacle. Northern Star trades at a higher multiple than Gold Fields, according to Citi analyst Ephrem Ravi, while the companies together own six of Australia’s 15 largest gold mines by production.
Northern Star also said the proposed share-heavy transaction would expose its investors to jurisdictional and operational risks they do not currently face. Gold Fields, which is listed in Johannesburg, has said it would establish a Sydney listing so Australian investors could trade its shares.
Michael Chaney, Northern Star’s chair, said Gold Fields had sought to acquire “one of the world’s premier gold portfolios” for substantially less than the board believes it is worth and at a “highly opportunistic time.”
Consolidation wave
The proposal lands amid a consolidation drive across the gold industry as producers seek scale and new reserves while attractive discoveries remain difficult to find. Newmont’s A$29-billion acquisition of Newcrest ranks among the sector’s biggest recent deals in Australia, while both Northern Star and Gold Fields have pursued smaller acquisitions.
Gold Fields acquired Australian producer Gold Road Resources last year after a contested takeover battle. JPMorgan and Bank of America are advising Gold Fields on its latest approach, while Goldman Sachs is advising Northern Star.
The proposal progress now depends on whether Gold Fields improves its terms or Northern Star’s board agrees to further talks. Elliott is pressing for the latter, adding shareholder pressure to a takeover approach that could reshape both Australia’s gold industry and the global producer rankings.
Source: https://www.mining.com/northern-star-rejects-opportunistic-gold-fields-27b-takeover-bid/
