Fitch Ratings has placed Yamana Gold Inc.’s BBB- Long-term Issuer Default Rating (IDR), senior unsecured revolver and noted ratings on Rating Watch Positive.
The Rating Watch Positive reflects expectations that the combined company will benefit from greater scale and diversification as well as improved ability to exploit its project pipeline.
“Yamana Gold Inc.’s ratings reflect the company’s portfolio of five operating mines with low jurisdiction risk, average cost positions in the second quartile of the global gold cost curve and the ability to generally replace reserves with modest capital outlays, coupled with moderate financial leverage and solid liquidity.”
Fitch Ratings
The acquisition is expected to close in Q4 2022, but may take longer than six months. The Rating Agency noted that it would remove the Rating Watch Positive and rate Yamana under the Parent and Subsidiary Linkage Criteria. This is based on a consolidated basis with Gold Fields Limited should the transaction close as anticipated, Fitch noted.
Fitch further noted that should the agreement be dissolved, “it would remove the Rating Watch Positive and assign an Outlook”.
The move comes following the announcement that Gold Fields has entered into a definitive agreement with Yamana which will see Gold Fields purchase Yamana under an all-in share transaction.
Yamana Wields Promising Pipeline of Exploration
Fitch sees Yamana’s current operating size, scale and diversification as relatively limited compared to other investment grade peers although the company has a promising pipeline of exploration and development projects.
“Yamana’s production is guided to roughly one million gold equivalent ounces (GEO) per year which is less than Endeavour Mining plc’s (BB/Stable) 2021 gold production at 1.5 million ounces, Kinross Gold Corporation’s (BBB/Stable) guidance at about 2.2 million GEO in 2022, and AngloGold Ashanti Limited (BBB-/Stable) 2021 gold production at 2.5 million ounces.”
Fitch Ratings
Fitch believes the ratio of reserves to production under represents Yamana’s operating mine lives as the company finds it more efficient to drill while mining at existing operations. At seven years, however, Yamana’s average operating reserve life is shorter than investment grade peers at more than 10 years, Fitch noted.
According to Fitch, the transaction is credit positive since the combined company would have greater scale and diversification and sources of development capital for Yamana and improve the jurisdiction risk and project pipeline for Gold Fields.
“Pro forma for the transaction, the combined company would have had 3.4 million GEO production in 2021, low third quartile all-in sustaining costs, a strong project pipeline in favorable jurisdictions, very strong liquidity represented by over $1 billion in cash on hand and more than $2 billion of undrawn revolving credit facilities and low financial leverage at current gold prices.”
Fitch
The total valuation for the purchase of Yamana goes for $6.7 billion. It is expected that the transaction will close in the second half of 2022 subject to and following the satisfaction of the conditions precedent to the Transaction.
Upon closing of the transaction, it is anticipated that Gold Fields’s Shareholders and Yamana Shareholders will own approximately 61 per cent and 39 per cent of the Combined Group, respectively.
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