Africa’s gold giant makes $27 billion bid to create world’s second-biggest producer — but Australian rival says no

South Africa’s Gold Fields has had a $27.1 billion (A$38.7 billion) bid for Australia’s biggest gold producer rejected, dealing a setback to a takeover that could create the world’s second-largest gold mining company.

• Gold Fields’ proposed $27.1 billion takeover of Australia’s Northern Star has been formally rejected.
• A deal would create the world’s second-biggest gold producer, with annual output of about 4.1 million ounces.
• Northern Star says the offer is too low and exposes its investors to greater risk through Gold Fields shares.
• Gold Fields still wants talks, while an activist shareholder is pressing Northern Star to consider serious offers.

Northern Star Resources disclosed the terms of the unsolicited proposal on Monday and said its board had refused to engage on that basis.

Gold Fields, however, says it remains open to talks. Its shares fell more than 12 per cent as trading opened in Johannesburg, while Northern Star closed 6.2 per cent higher in Australia, Reuters reported⁠.

The market reaction captures the problem for Gold Fields. Its offer combines cash with its own shares, so a fall in the South African company’s share price makes the bid less valuable to Northern Star investors.

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The price at the centre of the dispute

Gold Fields offered A$7.25 in cash and 0.3125 of its shares for every Northern Star share. The proposal was worth A$27 a share when it was submitted on 14 September.

By Friday, its implied value had fallen to A$25.19 as Gold Fields’ share price declined, putting it about 14 per cent above Northern Star’s closing price.

Northern Star argues that the price fails to capture the value of its mines and expected growth. It also objects to the amount of Gold Fields stock its shareholders would receive, saying that would expose them to greater risk across the countries where the South African miner operates. Its chair, Michael Chaney, called the timing “highly opportunistic”.

That objection matters because Northern Star is dealing with its own operational setbacks, including constraints at its Kalgoorlie processing plant.

Activist investor Elliott Investment Management has been pressing the Australian company to consider a sale or dispose of assets.

Northern Star’s board is arguing that selling before its planned improvements take effect would hand that future value to a buyer. The final point is the board’s position, rather than an independently established valuation.

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Gold Fields sees a global prize

For Gold Fields, Northern Star would add major producing assets in a country where it already operates.

Both companies have mines around Kalgoorlie in Western Australia, including Northern Star’s Super Pit. Gold Fields expanded its Australian business last year through its $2.4 billion acquisition of Gold Road Resources, which gave it full control of the Gruyere mine.

Gold Fields estimates that a combination could generate $4 billion to $5 billion in synergies through operations, corporate functions and the companies’ portfolios.

It says the enlarged miner would produce about 4.1 million ounces of gold a year, with roughly 80 per cent of output coming from Australia, North America and Chile. Those are Gold Fields’ projections for a deal that has not been agreed.

The proposed transaction would therefore change more than Gold Fields’ size. It would make an already international South African miner substantially more dependent on assets outside Africa, while giving Northern Star shareholders a stake in a business spanning several mining jurisdictions.

Gold Fields says it remains “open to constructive dialogue”. Elliott, which says it holds 6.2 per cent of Northern Star, argues that the board should engage with serious buyers.