South African gold producer Gold Fields has entered into a binding agreement to acquire 100% of Australian gold miner Gold Road Resources, in a deal that values the takeover target's equity at about A$3.7-billion.

The transaction will give Gold Fields full ownership of the Gruyere gold mine in Western Australia, a joint venture (JV) it currently operates with Gold Road. The sweetened offer, which is unanimously supported by the Gold Road board, follows weeks of negotiations between the companies.

Under the terms of the agreement, Gold Road shareholders will receive cash consideration equivalent to A$3.40 a share, comprising a fixed cash portion of A$2.52 and a variable cash component linked to Gold Road’s shareholding in Northern Star Resources. As at May 2, the variable portion was valued at A$0.88 a share.

In addition, Gold Road intends to declare a fully franked special dividend of about A$0.35 a share, funded from existing cash and liquidity. The special dividend, which will be deducted from the fixed cash consideration, remains subject to board discretion and Gold Road’s financial performance prior to implementation of the scheme.

The offer represents a 43% premium to Gold Road’s last undisturbed closing price of A$2.38 on March 21, the day before Gold Fields submitted its initial proposal. It is also 12% higher than the A$3.04 indicative offer disclosed in March.

Gold Fields has labelled the offer as its “best and final” in the absence of a superior proposal.

“Gold Fields is pleased that the SID has been executed and that the Gold Road board unanimously supports the scheme,” said Gold Fields CEO Mike Fraser. “The consolidation of our ownership in the Gruyere gold mine is firmly aligned to our strategy of improving portfolio quality through investment in high-quality, long-life assets and is immediately additive to the group's cash generation.”

Gold Road chairperson Tim Netscher commented that the board had believed the all-cash scheme offered compelling value, compared with what might otherwise be available if the company continued to operate as a standalone entity. 

"The variable cash consideration provides ongoing exposure to the supportive gold price environment up until the effective date of the Scheme through Gold Road’s shareholding in Northern Star. Additionally, the payment of a special dividend allows Gold Road to realise the full value of the company’s franking account balance for eligible shareholders," said Netscher.

Gold Road shareholders representing 7.5% of the company’s outstanding shares, including UniSuper, Yarra Capital, First Sentier, and Perpetual, have indicated their intention to vote in favour of the scheme, subject to customary conditions.

The scheme is subject to shareholder and court approval, as well as regulatory clearances including from the Australian Foreign Investment Review Board and the Australian Securities and Investments Commission. A shareholder meeting is expected to take place in September.

Gold Fields said the transaction provided a “strategically logical and low-risk opportunity” to consolidate Gruyere, while gaining exposure to Gold Road’s Yamarna exploration portfolio. The company highlighted the potential to increase production and extend mine life through the development of satellite deposits in a geologically familiar region.

Completion of the deal will see Gold Road delisted and becoming a wholly owned subsidiary of Gold Fields.