Gold Fields (NYSE:GFI) announced it will acquire Canadian gold mining company Yamana Gold (TSX:YRI), and will become the fourth biggest gold miner in the world once the acquisition is completed. For gold mining companies, the M&A process has become a way to increase gold production amid declining yields and fewer new discoveries.
The acquisition will give Yamana shareholders 0.6 of a Gold Field share per every outstanding Yamana Gold share. This is a 34% premium over its average share price from the past 10 trading days. The Yamana Gold board unanimously approved the deal that should close in H2 2022.
The combined company may see total production rise to 3.8 million ounces by 2024, once Salares Norte begins to come online and contribute to production numbers. That could make Gold Fields the world’s third-biggest gold miner according to the company’s CEO, Chris Griffith. In the coming decade, he also said the possibility of output reaching 4.8 million ounces is a possibility.
The merger, which will create a company based in Johannesburg, will have a market value of $15.9 billion. Gold Fields investors will own around 61% of the miner’s stock, while Yamana owners will hold the remaining 39%. Despite investors’ worries about populist policies and risks of higher mining taxes in neighbouring countries, the acquisition is consistent with Gold Fields’ desire to expand across North America, particularly in the Southern Hemisphere.
In addition, the company’s asset portfolio includes the development-stage Wasamac project in Quebec, Jacobina gold mine in Brazil, Cerro Moro gold-silver operation in Argentina, and two early-stage projects in Chile. It also owns a 50% stake in Malartic, the largest open-pit gold mine in Canada.
Only one mine remains in its home base for Gold Fields, which operates in Australia, West Africa and the Americas — South Deep. Its portfolio includes three operations in Ghana: the Cerro Corona mine in Peru, and the Salares Norte project in Chile.
Gold mining has seen decreasing returns in recent years as high-grade deposits of the precious metal have proven more elusive. To counteract this, miners have looked to increase production through M&A and cost-cutting measures. One of the factors offsetting declining yields is a stable and rising gold price over the long run that has boosted prices for assets from juniors. The Yamana Gold acquisition represents a significant win for Yamana and Gold Fields shareholders over the long run, creating what could become one of the most important gold companies in the world.