Giant gold miner eager to keep $38b Australian mega-deal alive

The South African mining giant vying to buy Australia’s largest gold miner says it is “open to further dialogue” after its initial $38 billion takeover bid was swiftly knocked back for being too low.

Perth-based Northern Star Resources this week confirmed it had “received, considered and rejected” an unsolicited takeover offer from Johannesburg’s Gold Fields in mid-September, telling investors it believed the proposal was highly opportunistic and undervalued the company’s assets spanning Western Australia and Alaska.

However, Gold Fields chief executive Mike Fraser on Wednesday said he believed the proposal warranted further consideration from Northern Star’s board and the company was open to further discussions.

“What we are proposing is a stronger combined entity that we believe will deliver value for both sets of shareholders sooner,” he said.

Fraser’s comments come amid growing speculation that Gold Fields may return to the table with a sweetened offer for Northern Star. Reports from Bloomberg News on Wednesday, citing unnamed sources, suggested Gold Fields is weighing whether to increase the cash component of the deal.

Speaking at an industry conference in Denver, Fraser said combining Gold Fields and Northern Star would create the world’s second-largest gold producer, behind the United States-based Newmont Corporation. It also presented “unique opportunities” to consolidate their assets in WA to form what could become the second-largest gold mining hub anywhere in the world, with an output of 2.4 million ounces of the precious metal a year, he said.

Both Northern Star and Gold Fields run multiple gold sites in WA, including around the town of Kalgoorlie where Northern Star owns and operates one of Australia’s biggest open-cut gold mines, known as the Super Pit.

“If you look at the position in WA, this provides a very unique opportunity to consolidate these assets,” Fraser said.

“This combination will allow us to ensure that the right ore is fed into the right mills in that area, resulting in lower haulage and processing costs, which is one of the core tenements of the operational synergies that we’ve identified.”

Under Gold Fields’ 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 chairman Michael Chaney argued that 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. He also said the deal would expose shareholders to “jurisdictional and operational risks to which they are not exposed today”.

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

News of Gold Fields’ takeover attempt 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 yellow 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 this week said the 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.”

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.