Former Gold Road boss Ian Murray believes Gold Fields has undervalued the takeover target by up to $1.63b

Gold Fields should have to cough up at least another $1 billion to buy Gold Road Resources, according to the man that brought the two companies together at their shared gold mine. Ian Murray led Gold Road through its discovery of the Gruyere deposit in central WA during 2013 and its sale of a half stake in the mining project to Gold Fields for $350 million three years later. South Africa’s Gold Fields has run Gruyere since first gold was poured in 2019 and now wants to absorb Gold Road’s 50 per cent interest. This half stake is the prize for Gold Fields as it aggressively pursues a $3.31 billion takeover of Gold Road, which has stoked a public war of words between the two mine partners. The all-cash offer of $3.05 per share valued Gold Road at a 28 per cent premium to its last trading price prior to the bid being announced. Mr Murray, who remains a small Gold Road shareholder after leaving the business in 2018, believes the premium should be significantly higher. “As far as I’m concerned, there’s at least another $1 or $1.50 (per share) that Gold Fields should be offering,” he told The West Australian. “That’s a big step change, but I think the reality that is what the sum of the parts comes up at.” This would equate to a top up on the $3.31b offer of between $1.08b and $1.63b. Mr Murray based part of his assessment on the circa $30 million per year saved from removing Gold Road’s corporate overheads, the net smelter royalty Gold Fields is set to pay Gold Road, and the tax benefits Gold Fields would be in line to receive. “Once Gruyere achieves 2 million ounces of production, Gold Fields has to pay Gold Road a 1.5 per cent net smelter royalty on all ounces produced, so if you work it out that’s about $12m a year after tax,” Mr Murray said. “Gold Fields is taxed on a group basis in Australia, so they can apply the depreciation against the Gold Road acquisition against profits they’re making from all their operations in Australia. “When you take out (Gold Road’s) De Grey stake the offer is about $2.4b and the 30 per cent (tax rate) gets you to about $700m. You work out a net present value of that . . . it’s not in the offer either.” Gruyere’s mine life currently ends at 2032, but Mr Murray shares the sentiment of current Gold Road chief Duncan Gibbs that there is considerable underground mining potential not fully baked into Gold Fields’ current bid. “I think Gold Road is talking about an eight year (underground) life, but no doubt that’ll be 10 years plus,” he said. But given Gold Fields holds the operational cards at Gruyere, there is little chance of an interloper throwing its hat in the ring for Gold Road. This puts a cap on the price Gold Fields would be willing to pay, analysts believe. “We think it’s highly unlikely Gold Fields would share all of the potential (underground) upside with Gold Road in order to secure an agreed deal,” Moelis Australia’s Paul Hissey said.