And then there were ten . . . again

Consolidating the gold industry, no matter how hard some companies may try, still isn’t coming easily: witness the defeat of the friendly deal that would have created Gold Fields International.

Shareholders voted down the deal between Gold Fields and Iamgold by 51% to 48%, leaving Iamgold in play and possibly pushing Gold Fields to a hostile offer from Harmony Gold Mining. The vote was not precisely the “overwhelming rejection” that Harmony called it, but still a decisive defeat for Gold Fields in its plan to bring North American equity multiples to South African shares.

The vote brought the ritual messages from the principals about being “free to pursue other options,” and the equally predictable shot from Harmony that suggested they were the only option left for Gold Fields to make a deal. The fact is that two companies that thought they had the best deal for their shareholders are now left to fall back on some second and third choices, and must hope to see some virtues in those choices they missed a few months ago.

As a mid-tier gold producer, Iamgold at least has the potential to be swallowed, which tends to provide the better return for the shareholder. Gold Fields shareholders have the offer only of Harmony paper, which is probably the thing Gold Fields management most wanted to avoid, or the prospect, perhaps slim, of finding a better acquisition than Iamgold in a fairly buoyant market.

On the other side of an ocean and an equator, Wheaton River Minerals, whose proposed merger with Iamgold started this whole round of auctions last March, announced a deal where Goldcorp will take it over in a four-for-one paper deal. That deal depends on getting a minimum two-thirds of Wheaton’s shares tendered to the offer. On the strength of recent events, Wheaton, which may well have been created to lure a bid in the first place, can’t yet close the book on its takeover story, which included the failed deal with Iamgold and fighting off a hostile approach from Coeur d’Alene Mines.

That was costly in more than one way. It’s revealing to look at the bids for Wheaton and see how its notional value has been sinking like the autumn sun. Wheaton shareholders might have got as much as $4.60 this past summer but will probably settle for about 30 less now, even if a superior offer comes in.

And while Iamgold shareholders have seen a modest increase in the value of their holdings, as their company has shifted from being a committed buyer (of Wheaton, seven months ago) to a seller, the price of shares over the past year has simply moved sideways.

To be fair, this is mostly true of the whole gold business. Equities, as usually happens, were whipsawed higher when gold prices began to rise in 2001 but have flattened out since, merely tracking the rise in gold bullion prices. Investors seem to have decided that the money has been made in gold shares.

That has to be bad news for any deal-makers that pin their hopes on a re-rating justified by consolidation. If the market now sees everyone in the gold industry sharing proportionately in a rising price — big and small, hedgers and non-hedgers — one of the main arguments for consolidation disappears.

We still think there’s a good argument to be made for fewer, bigger gold companies as stewards of a more rational (read, tighter) gold market. But just makin’ the damn deals isn’t getting them there.