Gold Road’s investors up pressure for it to engage with suitor

Gold prices are at record levels. Picture: AFP

Investors in Gold Road Resources are understood to have asked the management and board to engage with partner Gold Fields.

Shares in Gold Road increased a further 1 per cent on Wednesday after Gold Fields revealed this week that the former had been sitting on a $3.3bn buyout proposal for almost two weeks.

Gold Road is said to be unhappy about the offer because it came after an earnings downgrade for its prized Gruyere gold mine.

The downgrade was linked to a management misfire – Gold Fields being the manager.

Gold Fields is the owner of 50.1 per cent and the operator, while Gold Road owns the remainder.

Standstill agreements stipulate that Gold Fields cannot buy more than 10 per cent of Gold Road without the target’s approval and it needs to inform Gold Road if it is acquiring shares, making a hostile play almost impossible.

But while the offer is considered opportunistic, active fund managers want the pair to enter talks to determine if they can get a deal done.

Of the top 20 shareholders of Gold Road and Gold Fields, 25 per cent own both, a situation that typically happens when fund managers buy in, hoping to make money on a likely combination of two companies.

Two Australian investors that may agitate for change are Yarra Capital Management and First Sentier.

Yet part of the problem is that they are small holders compared to Gold Road’s other shareholders on the register, which is dominated by passive index funds that don’t partake in investor activism.

Shares in Gold Road Resources soared 14 per cent to $2.79 on Tuesday on news that it had fielded a $3.3bn ($3.05 per share) buyout proposal from Gold Fields on March 7, even though it was rejected.

Gold Road has tried to fight back with its own proposal involving the acquisition of its partner’s Gruyere stake, but it was rejected.

Gold Road was known to have been in takeover talks with parties last year, including Regis Resources.

Gold Road’s 17 per cent stake in De Grey Mining was thought to be the drawcard because it would give a buyer options over De Grey. But now De Grey is being bought by Northern Star Resources.