It wasn't gold prices driving the move. Gold did rebound a bit this week, but only momentarily, and its price has consistently declined since mid-April. But it looks as though Yamana Gold is getting acquired at a healthy premium.
On May 31, Yamana Gold and South Africa-based gold miner, Gold Fields (GFI 0.99%) announced that they had entered an agreement where the latter will acquire Yamana Gold in an all-stock deal. For each Yamana share they own, shareholders will receive 0.6 shares of Gold Fields. Based on Yamana's 10-day volume-weighted average price through the last trading day before the deal was announced, that exchange ratio implied a premium of roughly 34% for Yamana shareholders and valued the company at $6.7 billion.
Not surprisingly, Yamana stock surged the day the deal was announced, and maintained its momentum through the week despite multiple analysts' downgrades.
Analyst Mike Parkin of National Bank, for example, downgraded his rating on Yamana after the deal was announced. Parkin doesn't expect any competing bids given the premium Gold Fields has already offered, and therefore sees Yamana stock as fully valued.
Carey MacRury from Canaccord Genuity shared a similar opinion and downgraded Yamana stock this week as he expects the deal to go through.
The deal still requires shareholder approval, but several analysts expect that it will get it. There may be some merit in the consensus view that no other bidders will emerge. The gold industry has seen some consolidation in recent years, but rarely have any of those deals involved a premium, let alone a premium this high.
If Yamana Gold and Gold Fields combine as planned, they'll become the fourth-largest gold miner in the U.S. in terms of 2021 gold equivalent production. Based on their respective project pipelines, the combined company could increase its gold production at a compound annual rate of roughly 7.4% between 2022 and 2024. That's one of the highest projected production growth rates in the industry.
The combined company will also be geographically diversified, with operations in Canada, South Africa, South America, Ghana, and Australia. Yamana owns some solid assets like Canada's largest gold mine, Canadian Malartic, and the low-cost Jacobina mine in Brazil. Jacobina, in fact, delivered record monthly gold production in March, and the second phase of the mine is already under expansion.
Yamana also has a strong balance sheet and cash-flow profile, and pays a steady dividend. Yamana shareholders needn't worry about losing their regular payouts though: Gold Fields also pays a dividend and has increased it every year since 2018. Holders of the gold stock, therefore, should continue to earn passive income after the acquisition as well.