Australia's largest gold miner rejects takeover proposal

Northern Star Resources, Australia's largest gold miner, has rejected an unsolicited takeover proposal from South Africa's Gold Fields valued at about US$27.1bn, saying it undervalued the company. Reports since the 28 September rejection say Gold Fields is weighing a revised approach with more cash, but no new proposal has been lodged with the ASX.

Why it matters: A deal would create one of the world's largest gold producers and test how much miners will pay for ounces after gold's 24% drop from its January high.

The details

The proposal offered A$7.25 in cash plus 0.3125 new Gold Fields shares for each Northern Star share, Investing News Network reported. Because most of the value came in stock, it moved with Gold Fields' share price. By 25 September its implied value had slipped to A$25.19 a share, a 14% premium to Northern Star's price at the time.

Chairman Michael Chaney said the approach fell "well short" of what the board sees as the company's fundamental value. The board also pointed to upcoming milestones, including the ramp-up of the expanded Fimiston mill and the appointment of a new managing director and chief executive.

Investors split along the same line. Northern Star shares closed 6.15% higher in Sydney on the day of the rejection, while Gold Fields fell 13% in Johannesburg, according to Investing News Network.

Kalkine Media reported that Gold Fields was examining a structure with more cash, citing reports carried by Bloomberg. Gold Fields' finance chief has said the company wants constructive engagement with Northern Star's board and declined to comment on a hostile bid.

Deal appetite is high. Gold miners completed 32 deals worth $21bn last year, the most by value in 15 years, according to S&P Global data cited by Miningmx.

The next signal will be an ASX filing. A revised offer with a bigger cash portion would answer the board's main objection, that most of the value rests on Gold Fields' share price.