RPT — BREAKINGVIEWS — Gold Fields' $27 bln play may stay in M&A pit

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.) By Antony Currie MELBOURNE, Oct 16 (Reuters Breakingviews) — The latest multi-billion gold mining deal looks like it could be too difficult to unearth. Mike Fraser, CEO of South Africa's Gold Fields, is currently in Australia in part to explain to shareholders at rival Northern Star Resources why the A$38.7 billion ($27 billion) cash-and-stock offer he sent to the company's board last month makes sense.

Chances are, though, that he'll go home empty-handed. On paper the tie-up seems logical. The combination would create the world's second-largest producer of the yellow metal with operations in Australia, the Americas and Africa. Northern Star Resources has stumbled this year thanks to lower production and cost increases and has just replaced its CEO.

But it also has some of the best untapped resources, including the Hemi mine in Western Australia. And Fraser is offering to create a stock listing on Sydney's bourse so that Down Under investors don't have to hold South African shares. Yet the target, already under pressure from activist Elliott Investment Management, wants more money before even agreeing to talk. Fraser isn't keen on upping the offer, he indicated to Reuters.

That may be part of the typical dealmaking dance Down Under where a suitor and target go back and forth until either the former walks away or the latter finally agrees to open its books. Still, it'll be hard for Fraser to push forward, mainly because his own shareholders have sent Gold Fields' stock down 17% since he sent the bid to his prey's board. Just keeping the price at $27 billion means he'll either have to offer Northern Star investors more than the 33% of the combined company in his opening gambit or bump up the cash component.

Improving the 22% premium he has put on the table will require splashing out even more, which will be hard to get past his sceptical owners. To Fraser's credit, he has identified a rich seam of value for both sets of shareholders: he reckons bringing the two firms together would yield up to $5 billion, after tax, in synergies. Granted, around half of those are tax breaks, but that would flow through to the bottom line, too. Capitalised, those are worth up to $50 billion, almost double the entire amount Gold Fields is offering for its rival's equity.

Ideally, Fraser ought to be able to use some of that potential cost-cutting largesse to convince both his own and his quarry's shareholders that they can all benefit from a merger — and to offer a higher price. At present, though, it's more likely the deal stays in the M&A pit. Follow Antony Currie on Bluesky and LinkedIn. Context News Gold Fields CEO Mike Fraser played down speculation that the South African gold producer will raise its offer for Australia's Northern Star Resources in an interview with Reuters on October 15.

He may, though, consider increasing the cash component of the bid, the AFR reported. His company privately lodged a A$38.7 billion cash-and-stock offer with its Down Under rival on September 14. The Australian Financial Review broke the news of the offer on September 28. (Editing by Robyn Mak; Production by Aditya Srivastav) ((For previous columns by the author, Reuters customers can click on CURRIE/ mailto:antony.currie@thomsonreuters.com)