The $38b battle for Australia’s top gold miner may be just beginning

An international mining giant has taken its $38 billion pursuit of Australia’s largest gold producer directly to local investors, offering them the muscle to build a globally competitive gold behemoth and hoping their pressure will help force the board to the negotiating table.

Executives from South African-based miner Gold Fields brought forward plans for an Australian investor roadshow last week, seeking to boost its profile and win over key fund managers after Western Australia’s Northern Star Resources rejected its takeover attempt as “highly opportunistic”.

Gold Fields chief executive Mike Fraser spent the week meeting with Northern Star’s institutional investors across Perth, Sydney and Melbourne, noting that there appeared to be widespread consensus on the “strategic logic” of the tie-up.

Slides shown at investor briefings stated that combining the two companies’ projects in Western Australia would forge a new global gold production powerhouse in a “world-class province”, capable of rivalling Barrick and Newmont Corporation’s Nevada Gold Mines joint venture in the United States, and Agnico Eagle’s Abitibi hub in Canada.

If the takeover ultimately succeeds, the combined group would rank as the second-biggest gold producer globally, behind Denver-based Newmont. It would control eight of Australia’s 20 biggest gold mines – including Northern Star’s massive “Super Pit” in Kalgoorlie – and produce 4.1 million ounces a year of the precious metal.

“Creating a truly competitive global mining gold major that is centred out of WA is something that’s quite compelling in our view,” Fraser said.

In an interview in Melbourne, Fraser revealed that his discussions with Northern Star began more than a year ago after, Gold Fields acquired a 3.5 per cent stake in the company via its acquisition of Gold Road.

While some investors are pressing Gold Fields to sweeten its bid after Northern Star rejected its initial shares-and-cash proposal for being too low, Fraser is urging the board to first hold talks with Gold Fields, agree to the merits of the tie-up and grant access to its books.

“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.”

However, Northern Star chairman Michael Chaney said the board maintained that Gold Fields’ proposal did not appropriately recognise the quality and long-term value of the company’s portfolio of high-quality, long-life gold assets in tier-one mining jurisdictions, and its growth profile. He said the company’s directors remained focused on acting in shareholders’ best interests.

“This includes engaging with parties on proposals that represent value above what we believe Northern Star can generate as a standalone company,” Chaney said. “The Gold Fields proposal was not in that category.”

Under Gold Fields’ initial 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.

Northern Star’s shares are now more than 10 per cent higher than they were the day before news of the Gold Fields approach leaked.

“At current market values, the Gold Fields proposal is now at a discount to Northern Star’s share price,” Chaney said.

One of the top shareholders whose support Gold Fields is seeking to rally is US-based activist investor Elliott Investment Management, which has built a 6 per cent stake in Northern Star and has been pressuring the board to make sweeping changes. The hedge fund has criticised Northern Star’s sharemarket underperformance this year and urged it to consider a sale or asset divestments.

Gold Fields’ attempted takeover of Northern Star follows a multi-year rally in gold prices, fuelled by intensifying geopolitical tensions, worsening inflation fears, erratic policymaking in the United States and an erosion of trust in the US dollar.

Gold, the precious metal prized by civilisations for thousands of years for its rarity and use in jewellery, tends to be most sought after these days by investors as a safe place to store wealth during periods of extreme financial uncertainty.

Investors said the approach for Northern Star reflected the growing strategic appeal of gold miners. “Gold miners are back in favour,” Betashares investment strategist Tom Wickenden said.

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