Gold Fields‘ (JSE:GFI) CEO played down speculation on Thursday that the South African gold producer will raise its offer for Northern Star Resources (ASX:NST), saying the Australian miner first needs to acknowledge that it sees a potential path to a tie-up.
Gold Fields has embarked on a long-planned road show in Australia this month, where CEO Mike Fraser is aiming to boost its profile with investors in the country accounting for around half of its business.
Last month, it lobbed a $38.7 billion buyout proposal in shares and cash for Perth-based Northern Star, Australia’s biggest gold miner, in a bid to create the world’s second-biggest producer of the yellow metal.
But Northern Star rebuffed that offer. Under pressure from activist investor Elliott Investment Management following a run of poor performance, it opted instead for its own overhaul plans.
Northern Star said in a statement on Thursday that its board remained focused on acting in the best interests of shareholders.
“This includes engaging with parties on proposals that represent value above what we believe Northern Star can generate as a standalone company. The Gold Fields proposal was not in that category,” it said.
Gold Fields’ Fraser said the market expected his company to make another offer.
“But I think before you get into … throwing in new offers, you’ve got to at least have some reciprocation to say, actually we think there is a pathway (to value) here,” he told Reuters.
“At the moment, we’re not hearing any of that.”
Northern Star’s shares are up 10% since the day before the approach became public. Gold Fields shares have fallen nearly 17% in the same period.
Rallying investors behind merger
Gold Fields’ South African shareholders — among them the Public Investment Corporation, its largest shareholder with a 15% stake — saw the strategic logic of a merger, Fraser said.
But he added that some South African investors were concerned about the potential for cost escalation, the delivery of a turnaround plan for Northern Star and the potential for Gold Fields to overpay.
PIC said it did not wish to publicly express a view on a potential merger.
Meanwhile, Fraser said that, though Australian institutional investors were not overly familiar with Gold Fields’ business, after a number of conversations he believed “people buy into the logic of the merger.”
“What we’ve heard from investors on both sides is that they see this as being compelling,” he said.
Gold Fields had also met with Elliott, which has a 6% stake in Northern Star and has previously emphasised its commitment to the gold miner’s turnaround.
Fraser said Elliott was focused on delivering a short-term outcome, whereas Gold Fields’ merger strategy was seeking to “create a story that is actually much more enduring”.
“They’ve got an important role, but they’re not long-term shareholders,” said Fraser.
Elliott had no immediate comment.
Combined company could re-rate
Gold Fields has said it saw US$4 billion to US$5 billion in synergies from a tie-up, which come mostly from tax benefits and combining operations.
Both miners have gold operations in Western Australia, including around the town of Kalgoorlie where Northern Star runs Australia’s biggest gold mine, known as the Super Pit.
Fraser said one overlooked benefit, however, was the prospect that a combined company could rerate.
“We absolutely believe that this combined business would be trading at a much higher relative multiple than what we’re trading at today,” he said.
Gold Fields’ shares are trading on an enterprise multiple of 3.5 to 4 times earnings before interest, tax, depreciation and amortisation, much cheaper than Northern Star’s multiple of 7 to 8 times. Larger peer Agnico Eagle (TSX:AEM) is trading around an 8-times multiple.
Fraser said he would walk away if there was no alignment on value creation.
“But that’s a step away from where we are today,” he said.
(Reporting by Melanie Burton; Additional reporting by Olivia Kumwenda-Mtambo in Johannesburg; Editing by Stephen Coates and Joe Bavier)
Main image: Northern Star Resources
