This week, it appeared that the transaction between rival Yamana Gold and gold mining company Gold Fields was in jeopardy.
What does this mean?
Back in the warm late spring, Gold Fields and Yamana appeared to be inseparable, cozying up in a transaction that would see Gold Fields acquire its rival, expand into new nations, and instantly become the fourth-largest gold miner in the world. However, it turns out that their relationship was actually strained since Gold Fields was struggling to win over its stockholders.
Pan American and Agnico Eagle, rivals in the precious metals market to Gold Fields, were planning in the background, and this week they swooped in to woo Yamana with a joint offer that was around 15% greater than the original. Gold Fields indicated it wouldn't compete, and Yamana quickly said it would urge shareholders to reject Gold Fields' offer. Yamana's announcement was cold-eyed and unemotional.
Why should I care?
Here's the thing: at the beginning of this week, the value of the two offers was essentially equal between them due to recent changes in share prices. The type of contract may have been the true sticking point in this situation. Since the offer was made public in May, the shares that made up Gold Fields' all-share offering have lost roughly 40% of their value. The Agnico-Pan American offer, on the other hand, was composed of both cash and stock, with the cash element currently representing a safer short-term investment. Therefore, Gold Fields may need to risk some money if it wants to win Yamana back.
Source: Google Finance
The conflict over Yamana provides some insight into the less-than-glamourous gold sector. You see, the price of gold is being affected by the strong dollar and rising interest rates, which, along with mounting expenses, is reducing gold's once-brilliant revenues. It makes sense that miners would turn to acquisitions to support their income and output, especially given the rarity of fresh gold finds.
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