Gold Fields CEO Mike Fraser has played down expectations of a higher takeover offer for Northern Star Resources, saying the Australian gold producer must first show it sees a path to creating value through a combination. His comments suggest the South African miner is unwilling to improve its bid without a clearer signal from its target.

Gold Fields has begun a long-planned roadshow in Australia this month, with Fraser seeking to build support among investors in a market that accounts for about half of the company’s business. The visit comes weeks after Gold Fields proposed a A$38.7 billion ($27 billion) cash-and-stock acquisition of Northern Star, aiming to create the world’s second-largest gold producer.

Northern Star rejects initial bid

Northern Star rejected the proposal and opted to pursue its own turnaround plans under pressure from activist investor Elliott Investment Management, which has criticized the company’s performance. Both miners operate in Western Australia, including around Kalgoorlie, where Northern Star runs the Super Pit, one of Australia’s largest gold mines.

Northern Star said Thursday that its board remained focused on acting in shareholders’ best interests, including engaging with parties whose proposals offer more value than the company could generate independently. The board said Gold Fields’ proposal failed to meet that threshold, leaving the proposed combination without public support from its intended target.

Fraser acknowledged that investors expected Gold Fields to return with an improved offer but said a revised bid would require some indication that Northern Star saw merit in a deal. “At the moment, we’re not hearing any of that,” he said, signaling that Gold Fields would not raise its proposal simply to satisfy market expectations.

Gold Fields courts key investors

The Public Investment Corp., Gold Fields’ largest shareholder with a 15% stake, recognizes the strategic case for a merger, Fraser said. However, the South African state-owned asset manager has raised concerns about rising costs, Northern Star’s ability to execute its turnaround and the risk that Gold Fields could pay too much. The PIC had no immediate comment.

Fraser said conversations with Australian institutional investors had strengthened his belief that the merger’s strategic rationale was gaining traction, despite limited familiarity with Gold Fields’ business among some investors. He said shareholders on both sides viewed the combination as compelling, although investor interest has yet to translate into an agreement with Northern Star’s board.

Gold Fields has also met with Elliott, which owns a 6% stake in Northern Star and has emphasized its commitment to the company’s turnaround. Fraser characterized Elliott’s focus as delivering shorter-term results, contrasting it with Gold Fields’ ambition to build a business capable of creating value over a longer period. Elliott had no immediate comment.

Merger could lift valuation

Gold Fields has estimated that combining the businesses could generate $4 billion to $5 billion in synergies, primarily through tax benefits and the integration of operations in Western Australia’s gold-producing region. Fraser also pointed to the potential for investors to assign the combined company a higher valuation multiple than either miner currently commands.

Gold Fields trades at an enterprise value of about 3.5 to four times earnings before interest, taxes, depreciation and amortization, compared with Northern Star’s seven to eight times. Agnico Eagle Mines, a larger industry peer, trades at about eight times, Fraser said, arguing that a combination could help Gold Fields close the valuation gap.

Fraser said Gold Fields would walk away if the two companies could not agree on how to create value, although he suggested that outcome was not imminent. The company operates eight mines across South Africa, Australia, Ghana, Chile and Peru, while Northern Star has producing and exploration assets in Western Australia and Alaska. Any deal would reshape the global gold industry, but a higher offer remains uncertain.