Australia’s biggest gold miner rejects ‘opportunistic’ $38b takeover offer

Australia’s largest gold miner has shot down a blockbuster $38 billion takeover bid from a South African-based rival, calling the offer “highly opportunistic” and telling shareholders that it significantly undervalued the company.

The board of Perth-based Northern Star Resources on Monday confirmed reports of a bid from South Africa’s mining giant Gold Fields, saying it had “received, considered and rejected” the proposal made on September 14.

Chairman Michael Chaney said Gold Fields had tried to buy one of the “world’s premier gold portfolios” at a price that fell well short of what the board believed reflected the fundamental value of its assets in low-risk jurisdictions or its growth prospects.

The proposed combination of the two companies would create the world’s second-largest producer of the precious metal, behind Denver-based Newmont Corporation.

Northern Star, whose business spans from Western Australia to Alaska, owns the Kalgoorlie Super Pit, one of Australia’s largest open-pit gold mines, while Gold Fields owns four major WA mines including St Ives, Gruyere, Granny Smith and Agnew.

Under the offer, Northern Star shareholders would have received 0.3125 new Gold Fields shares and $7.25 in cash for each share they own. The bid valued Northern Star at $38.7 billion, a 22 per cent premium based on both companies’ share prices on the last trading date before it was lobbed.

However, Northern Star said the deal would expose shareholders to “jurisdictional and operational risks to which they are not exposed today”.

“Gold Fields has asked our shareholders to take nearly three-quarters of the consideration in Gold Fields stock, which carries a meaningfully higher jurisdictional risk profile than the exposure they hold today,” Chaney said.

“These factors, in conjunction with the conditionality of the indicative proposal, are the basis on which the board has unanimously rejected” the offer, he said.

Northern Star’s board has been pressured to make sweeping changes from US-based activist investor Elliott Investment Management. The hedge fund criticised Northern Star’s sharemarket underperformance this year and urged it to consider a sale or asset divestments.

Elliot has also been pushing for an overhaul of Northern Star’s board. The gold miner has appointed a new chief executive, former Glencore executive Suresh Vadnagra, who takes the helm next month.

News of the takeover approach comes as a multi-year rally in gold prices has driven a wave of deals in the industry, with Gold Fields among the most acquisitive. Takeovers of WA gold producer Gold Road Resources and Canada’s Osisko Mining over the past two years have strengthened its global footprint, giving it full operational control of assets spanning Africa, Australia and the Americas.

Surging bullion prices have also heaped pressure on miners to maximise returns on their portfolios, with several producers considering spinoffs and asset sales after a series of cost blowouts and operational setbacks that have plagued the sector.

Investors on Monday said Gold Fields’ approach for Northern Star reflected the growing strategic appeal of gold miners.

“Gold miners are back in favour,” said Betashares investment strategist Tom Wickenden.

“Central bank buying and concerns over US debt and currency debasement are adding to that support, and we could very well see more merger and acquisition activity among gold miners and the materials sector more generally.”

In June, Chaney wrote in a letter to shareholders that the company had been approached by several suitors about deals over the past year, but said it was not the right time to sell.

Northern Star has cut its production guidance several times over the past year, with issues at its Kalgoorlie processing plant in Western Australia constraining its output and weighing on its performance relative to other gold miners.

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