Precious metal miners Pan American and Agnico Eagle have made a joint $4.8bn bid for Yamana Gold, swooping in after Gold Fields faced an uphill battle convincing investors to back its takeover offer.
The two companies offered a shares and cash deal that represents a 15 per cent premium to the all-stock offer made in May by South Africa’s Gold Fields and would involve Yamana’s assets being split up between the two groups.
The takeover battle comes as precious metal producers grapple with soaring costs for inputs such as fuel, cyanide and explosives and a slump in gold prices on rising interest rates and a strong US dollar.
The sector is widely seen as ripe for consolidation since it is far more fragmented than other corners of the metals industry.
Under the terms of the deal, each Yamana share would be exchanged for $1.04 in cash, 0.1598 Pan American shares and 0.0376 Agnico Eagle shares for an aggregate value of $5.02 per share. Yamana shareholders would receive $1bn in cash and the offer represents a 23 per cent premium to its share price at Thursday’s close.
The rival takeover offer is a setback for management at Gold Fields, which has fought to win over shareholders who believed it was paying too high a premium. Its shares plunged after the offer was made.
Gold Fields’ Johannesburg-listed stock jumped 15 per cent on Friday, while those in Yamana gained 10 per cent. Shares in silver producer Pan American fell 7 per cent.
Yamana’s board of directors has deemed the latest offer to be a “superior proposal” and intend to accept it unless Gold Fields exerts its right to match the proposal within five business days.
According to the terms of the agreements, if the merger with Gold Fields is terminated in favour of the new offer, the Johannesburg-based group would receive a $300mn termination fee.
Gold Fields said in a statement that its bid remained “strategically and financially superior” with higher-quality assets, lower risk and higher sustained returns on offer for Yamana shareholders. It added that it would provide a further update to the market on Monday.
The deal would transform Pan American into a major Latin American precious metals producer. It would add four Yamana projects to take its portfolio to 12 mines, lift its silver production by half and double its gold production to as much as 30mn and 1.2mn ounces, respectively.
Michael Steinmann, chief executive of Pan American, said that “the combination of our existing portfolio with Yamana’s high-quality assets in Latin America would create a powerful precious metals mining company in the Americas”.
Toronto-headquartered Agnico Eagle would take the 50 per cent stake from Yamana in the Canadian Malartic mine that it does not already own.
A lack of exploration and greenfield development means that the production levels of most gold mining companies are set to decline in the years to come, further fuelling the desire for mergers.