Shares of Yamana Gold (NYSE:AUY) are up about 15% on news that the Canadian mining company is being acquired by South Africa’s Gold Fields (NYSE:GFI) in an all-stock deal worth $6.7 billion that will create the world’s fourth largest gold producer.
Gold Fields said it will own about 61% of the combined company once the deal is closed, while Yamana Gold shareholders will own 39%. Yamana currently operates gold mines in Canada, Argentina, Chile, and Brazil, and Gold Fields said the acquisition fits its “strategy of expanding in the Americas.”
Prior to today’s move higher, shares of Yamana Gold had risen 33% year-to-date to $5.61 as commodity prices have risen and gold price firmed up in recent months. Gold Fields’ stock is down over 20% today on news of the acquisition, erasing all of its gains for the current year.
In a news release, Gold Fields said that it is offering a sixth of one of its shares for each Yamana Gold share. The deal represents a 34% premium to Yamana stock’s closing price last Friday (May 27). Gold Fields, which has been a going concern since 1887, currently has one mine left in South Africa. As that mine winds down, the company has shifted its focus abroad, operating mines in Ghana, Australia, and throughout South America.
Yamana, which produced 884,793 ounces of gold and 9.2 million ounces of silver in 2021, owns 50% of Canada’s biggest gold mine called “Canadian Malartic.” It has smaller operations in Chile, Brazil and Argentina. Gold Fields currently operates the Cerro Corona mine in Peru and is developing the Salares Norte project in Chile, which is expected to start production in 2023. Gold Fields said both companies’ boards had “unanimously approved the deal” and recommend that its shareholders vote in favor of the offer. The deal is expected to close in the second half of this year.
Why It Matters
The $6.7 billion acquisition of Yamana Gold is the largest mining transaction in the Europe, Middle East and Africa region in a decade, and is the third-largest South African transaction since 2014. After a lull during the pandemic, merger activity in the gold industry is now recovering, driven by a need to grow internationally and drive share prices appreciation. Canada’s Agnico Eagle Mines (NYSE:AEM) bought privately held Kirkland Lake Gold for more than $10 billion at the start of this year.
Once the deal is finalized, shares of Yamana will be delisted from both the Toronto and New York stock exchanges, while Gold Fields will continue trading in Johannesburg, where the combined companies will be headquartered. “We will have some synergy savings in overheads and some savings by bulking up and putting our assets together in South America around supply chains,” said Gold Fields chief executive officer (CEO) Chris Griffith in the news release announcing the deal.
What’s Next for AUY Stock
AUY stock moves higher today on news it is likely to be acquired and that its shareholders will get a 34% premium for the stock they currently hold. Long-term, the deal should benefit Gold Fields as the acquisition of Yamana Gold will give it scale and a more global footprint, as well as lessen its reliance on mining in its home nation of South Africa.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.