By Melanie Burton and Roshan Thomas
MELBOURNE, Sept 28 (Reuters) – Australia’s top gold producer Northern Star Resources said it rejected an unsolicited A$38.7 billion ($27.1 billion) takeover proposal from South Africa’s Gold Fields, the latest sign of consolidation pressure in the gold sector.
A successful bid for Northern Star would create the world’s second-biggest gold producer after Newmont and rank among the largest-ever takeovers of an Australian company. The offer comes after a rally in gold prices to record highs at the start of the year has fizzled out.
The Perth-based miner has been the target of a campaign by activist investor Elliott Investment Management, which in June urged Northern Star to conduct a strategic review that it said could result in a sale to a rival such as Gold Fields.
Under the offer, Northern Star shareholders would have received 0.3125 new Gold Fields shares and A$7.25 in cash for each Northern Star share.
Northern Star said it had received the proposed offer from Gold Fields on September 14, which was worth A$27.00 a share at the time, but the value had since fallen to A$25.19 based on the South African miner’s closing price on Friday.
That would represent a 14% premium to Northern Star’s last closing price, whereas Australian corporate takeovers typically need a premium of at least 30% for deals to proceed.
Shares of Northern Star closed 6.2% higher at A$23.47 on Monday, but below the implied offer price and down from a peak of A$24.46 in early trading. Gold Fields shares fell more than 12% as the Johannesburg Stock Exchange opened.
“Gold Fields has sought to acquire one of the world’s premier gold portfolios at a price that falls well short of what the Board considers to be its fundamental value and at a highly opportunistic time,” Northern Star Chairman Michael Chaney said in a statement.
Gold Fields said it had held a number of discussions with Northern Star over the last six months with limited engagement before submitting a proposal that it believed offered compelling strategic and financial benefits for both sets of shareholders.
“The Company remains open to constructive dialogue and continues to seek engagement with the Northern Star Board,” it said in a statement.
Executives from both miners will address investors in previously planned presentations at a Colorado gold conference on Tuesday.
Northern Star appointed a new chief executive in July under pressure from Elliott, which said it now holds 6.2% of the miner.
Elliott Partner John Pike said in a statement on Monday that the investor believed there was immense potential for value creation at Northern Star, which any transaction would need to reflect.
“The Board has an obligation to engage with any serious buyer and fully evaluate the best path to deliver on that potential,” he said.
WESTERN AUSTRALIAN OPERATIONS
Both miners have gold operations in Western Australia, including around the town of Kalgoorlie where Northern Star runs Australia’s biggest gold mine, known locally as the Super Pit.
Gold Fields said it expected $4 billion to $5 billion of corporate, operational and portfolio optimisation synergies from the deal.
The transaction would also boost its exposure to longer-life assets and create a company with annual gold production of 4.1 million ounces, of which 80% would come from Australia, North America and Chile.
Gold Fields last year expanded its Australian footprint with the A$3.7 billion acquisition of Gold Road Resources after tabling an improved offer.
Northern Star shareholders would retain a 33% interest in the new company, which would establish a secondary listing on the Australian Securities Exchange, Gold Fields said.
“This bid feels opportunistic and (we) would agree with the board in rejecting it,” said John Ayoub, a portfolio manager at Wilson Asset Management, which holds Northern Star shares.
He said investors needed to weigh the value of Gold Fields’ shares against Northern Star’s ability to create value through its own turnaround plans or potential asset sales.
The Australian miner said Gold Fields’ proposal would have left shareholders with significant exposure to the South African miner’s stock, which it said carried a higher jurisdictional risk profile than Northern Star’s existing asset base.
The company also said the proposal materially undervalued its portfolio of long-life assets and was made ahead of key growth catalysts, including the ramp-up of the Fimiston Mill.
($1 = 1.4267 Australian dollars)
(Reporting by Melanie Burton in Melbourne, Roshan Thomas in Bengaluru and Nelson Banya in Harare; Editing by Jamie Freed)
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