What’s Going On Here?Gold miner Gold Fields announced on Tuesday that it’s agreed to buy Canadian rival Yamana Gold. What Does This Mean?Gold Fields has shifted focus away from its home turf of South Africa in the last few years, where it’s been wrestling with power cuts, higher costs, and the world’s deepest deposits. This latest deal, then, should help it expand into “mining-friendly” countries like Canada, Argentina, Chile, and Brazil, and allow it to grow long term even as its existing production drops off. It’ll also turn the miner into a powerhouse: the combined companies will boast an annual gold production of around 3.4 million ounces, overtaking South African rival AngloGold Ashanti to become the world’s fourth-biggest gold miner. Gold Fields is offering Yamana’s shareholders 0.6 of its own shares for each Yamana share, which values the company at $6.7 billion – around 34% more than Yamana was worth before the deal was announced (tweet this). Why Should I Care?The bigger picture: Analysts will be pleased.
This deal is just the latest in the industry after Newcrest’s $3 billion acquisition of Pretium Resources and Agnico Eagle’s $11 billion merger with Kirkland Lake late last year. It’s about time too: analysts think there are too many gold miners, and that the industry – notorious for spending too much on projects and execs – is overburdened with costs. Gold Fields’ deal should help put their minds at rest: the company’s estimating that it’ll save $40 million a year when it teams up with Yamana.
Zooming out: No one likes a gold digger.
Investors have been shunning gold miners in the last year, with an index tracking some of the world’s biggest down 18% versus the US stock market’s 1%. That’s partly because the gold price – which usually comes into its own during times of economic uncertainty – has been under pressure: rising interest rates have opened up opportunities elsewhere, while a stronger US dollar has made the dollar-denominated metal more expensive to international buyers. | 