Gold Fields spent six months trying to get Northern Star to the table, and when it finally put a price in writing, the answer came back by letter. The JSE-listed miner confirmed on Monday that it had offered A$38.7 billion, about R455 billion, for Australia's top gold producer. Northern Star's board replied on 24 September that it was not appropriate to engage in further discussions at this time. By Monday morning, Gold Fields' own shares were down almost 13% on the JSE.
The offer was mostly paper. For every Northern Star share, its owners would have received a slice of a Gold Fields share plus A$7.25 in cash, together worth A$27 on Gold Fields' numbers. That was 22% more than Northern Star's last closing price. Had the deal gone through, Northern Star's shareholders would have ended up owning about a third of Gold Fields.
Why Northern Star's chair said no
Michael Chaney, Northern Star's chair, gave two reasons, and the second one is aimed squarely at Gold Fields itself. The first was price: he said Gold Fields was trying to buy one of the world's premier gold portfolios for well short of what his board thinks it is worth, and at a highly opportunistic time. The second was what Gold Fields wanted to pay with. Nearly three-quarters of the price would have come in Gold Fields shares, which Chaney said carry a meaningfully higher jurisdictional risk, meaning more exposure to the countries Gold Fields mines in than his shareholders have today. Add the conditions attached to the proposal, and the board turned it down unanimously.
Gold Fields does carry some country headaches. At home its South Deep mine has been less productive, and in Ghana the future of its Tarkwa mining licence is uncertain. Most of the offer would have been paid in shares that carry both.
What Gold Fields was after
The attraction was geography. Both miners dig in Western Australia around Kalgoorlie, where Northern Star runs the country's biggest gold mine, known locally as the Super Pit. Gold Fields said 92% of Northern Star's Australian reserves outside its Hemi project sit within 100km of Gold Fields' own processing plants. Put together, the two would have been the second-largest gold producer in the world, and chief executive Mike Fraser put the extra value from running them as one at $4 billion to $5 billion.
It is not a new appetite. Gold Fields already runs four mines in Western Australia's Goldfields region, and last year it paid A$3.7 billion for Gold Road Resources to take full ownership of the Gruyere mine there. Before that it bought Osisko Mining, and with it one of Canada's largest undeveloped gold deposits.
Not everyone around Northern Star is keen on saying no. The activist investor Elliott Investment Management urged it in June to run a strategic review that could end in a sale to a rival such as Gold Fields. And on Monday, Northern Star's shares rose 10.6% in early trade, still stopping short of the A$27 Gold Fields had offered.
