GOLD Fields put a question mark over its proposed $23bn cash and shares acquisition of Northern Star Resources, the Australian miner, saying in a third-quarter update on Thursday there was no certainty the deal would be done.
“Although we remain open to engagement, there can be no certainty that further engagement with the Northern Star Board will occur, that the proposal will progress, or that a transaction will ultimately be concluded,” said Mike Fraser, CEO of Gold Fields.
Speaking to the Australian Financial Review last month, Northern Star’s newly appointed CEO Suresh Vadnagra said the board was open to discussions if Gold Fields improved its offer, which represented a softening of the firm’s earlier position, possibly reflecting the views of Northern Star’s activist shareholder Elliott Investment Management.
Northern Star’s board has also changed, with former Anglo American CEO Mark Cutifani joining, while chairman Michael Chaney is due to step down at the firm’s annual general meeting later this month.
However, Gold Fields will most likely be required to sweeten its offer, which is currently 15% less at an implied value of A$22.90/share compared to A$27.00/share at the time the offer was made on September 14.
“While we see compelling industrial logic and synergy opportunity with the proposed combination, any potential transaction would need to be consistent with our disciplined approach to capital allocation and our clear requirement that the transaction creates compelling value for Gold Fields’ shareholders,” said Fraser in comments in the quarter three report.
Fraser’s comments have the flavour of a boilerplate statement, “... but it also serves notice to Northern Star that their only suitor may move on to other, better things if they don’t engage,” said an industry source.
Gold Fields stands to become the world’s second-largest gold producer if the deal with Northern Star is completed. Combined gold production will be 4.1 million ounces a year with about 80% of production coming from Australia, North America and Chile.
But it will require a significant premium. “Deals of this nature typically require premiums closer to 30%, in our view, which is well above the current 22% proposal,” said Arnold van Graan, an analyst for Nedbank Securities, in a report last month. “A higher offer is, therefore, quite likely,” he added.
Production in Gold Fields's third quarter fell 3% to 605,000 oz owing to a grade decline at Agnew, a mine in Australia, and planned lower production from Salares Norte. The Chile mine made it through a second successive winter without output glitches. In its maiden year, Salares Norte was hamstrung by early onset of a bitter winter.
Despite the decline in output, Gold Fields said it was on-beam for the upper end of its full year production guidance of 2.4 to 2.6 million oz. All-in sustaining capex has been guided to $1,800 to $2,000/oz. Costs have ramped up significantly year-on-year owing to gold price related royalties and input material inflation such as diesel. But at $1,965/oz for the quarter – 26% higher compared to last year – costs were running to plan, it said.
Gold Fields appears to be outperforming on its shareholder returns. Including an interim dividend of $878m and $215m in share buy-backs during the quarter, total returns for the nine months stood at $1.11bn of the $1.25bn allocated in November when the group unveiled its new capital allocation plans.
But net debt more than doubled to $981m as of September 30 (June 30: $437m). Net debt as a proportion of adjusted EBITDA stood at 0.13 times. "The balance sheet remains robust," said Fraser.