JUST over two years ago Gold Fields CEO Chris Griffith launched an audacious $6.7bn all-share takeover of Yamana Gold, a Canadian company. Less than six months later, the deal was called off after rivals outbid the South African firm.
It was questionable whether the deal would have passed anyway, even without interlopers. Shareholders in Gold Fields were shifty on the premium Griffith offered. Other investors expressed concerns about deal structure. A merger of equals would have been better, some argued.
But it doesn’t look a terrible deal today. Firstly, shares in Gold Fields are 40% higher. It’s an imponderable how Yamana would have traded, but the Van Eck Gold Miners ETF is only 5% higher over the same period.
Then there is Salares Norte, Gold Fields’ Chile project, which is struggling to meet gold production ramp up targets. In its latest setback, Gold Fields announced that the early onset of winter weather had frozen pipes at Salares Norte.
The outcome is another cut in the mine’s guidance to as low as 80,000 ounces for 2024. This compares to the mine’s 400,000 oz/year nameplate capacity and means Gold Fields is at risk of reaching adjusted guidance of 2.2 to 2.3 million oz this year.
Yamana’s 885,000 ounces a year in production, not to mention its growth projects, might have taken some of the sting out of Salares Norte which is proving a critical test for Gold Fields current CEO, Mike Fraser.
Salares Norte was to have provided Gold Fields with a pulse in production to about 2.7/2.8 million ounces by 2027, but now investors can question whether Gold Fields has really just been in precipitous decline since bidding adieu to CEO of nine years Nick Holland, in 2021. Did Griffith not spot this? He most certainly did, but shareholders took a short term view.
“Salares was earmarked to deliver much-needed growth in the Gold Fields portfolio,” said Arnold van Graan, an analyst for Nedbank Securities. “The delay in output would not only trim the near-term growth prospects, but would also raise questions about the longer term production profile, in our view.”
Van Graan believes production delivery could weigh on Gold Fields’ valuation for some time. The miner also has downgraded production at South Deep, its South African mine.