Gold Fields has taken its proposed $38 billion takeover of Northern Star Resources directly to Australian investors, hoping shareholder pressure will persuade the gold producer’s board to reconsider its rejection of the approach.
The South African-based miner held meetings with Northern Star’s institutional investors in Perth, Sydney and Melbourne last week. Gold Fields chief executive Mike Fraser said there was broad agreement among investors about the strategic case for combining the two companies.
The campaign follows Northern Star’s dismissal of the proposal as “highly opportunistic”. Gold Fields is seeking support from major fund managers as it attempts to gain access to Northern Star’s books and begin formal due diligence.
Presentations to investors argued that merging the companies’ Western Australian operations would create a major global gold producer in what Gold Fields described as a world-class mining region.
If completed, the deal would create the world’s second-largest gold producer behind Newmont Corporation. The combined business would control eight of Australia’s 20 biggest gold mines, including Northern Star’s Super Pit in Kalgoorlie, and produce 4.1 million ounces of gold a year.
“Creating a truly competitive global mining gold major that is centred out of WA is something that’s quite compelling in our view,” Mr Fraser said.
Gold Fields’ initial proposal offered Northern Star shareholders 0.3125 new Gold Fields shares and $7.25 in cash for every share they owned. The offer valued Northern Star at $38.7 billion, representing a 22 per cent premium based on the companies’ share prices before news of the approach emerged.
However, Northern Star’s shares have since risen by more than 10 per cent, leaving the value of Gold Fields’ proposal below the company’s current market price.
“At current market values, the Gold Fields proposal is now at a discount to Northern Star’s share price,” Northern Star chairman Michael Chaney said.
Mr Chaney said the board believed the proposal failed to recognise the quality and long-term value of Northern Star’s portfolio of high-quality, long-life gold assets, as well as its growth prospects.
“This includes engaging with parties on proposals that represent value above what we believe Northern Star can generate as a standalone company,” he said. “The Gold Fields proposal was not in that category.”
Mr Fraser said his discussions with Northern Star had begun more than a year ago, after Gold Fields acquired a 3.5 per cent stake in the company through its purchase of Gold Road.
While some investors have urged Gold Fields to improve its offer, Mr Fraser said the immediate priority was for Northern Star’s board to acknowledge the strategic merits of a combination and allow access to information that could establish the company’s value.
“Let’s agree [to] the strategic logic of it and align that this is something we want to pursue,” he said. “I think if we can then go in and do due diligence, firm up the value, then we can have a conversation around value.”
One of the investors Gold Fields is seeking to win over is Elliott Investment Management, the US activist fund which has built a 6 per cent stake in Northern Star. Elliott has criticised the company’s sharemarket performance this year and called for sweeping changes, including consideration of a sale or asset disposals.
The attempted takeover comes after a sustained rise in gold prices, driven by geopolitical tensions, inflation concerns, uncertainty over US policy and declining confidence in the US dollar.
Tom Wickenden, an investment strategist at Betashares, said the approach reflected the increasing strategic appeal of gold producers. “Gold miners are back in favour,” he said.
