The new “Westgold Resources 3.0” entity will finally set sail after securing a final nod of approval overnight from the Ontario Superior Court of Justice in Canada, which sanctioned a proposed scheme of arrangement for a merger with Karora Resources (TSE: KRR).
Backed by an almost unanimous vote by Karora shareholders at a special meeting six days ago, the rubber stamp now allows the company to acquire all of the issued and outstanding common shares of Karora.
With the final customary closing conditions either met or waived, the company expects the scheme to become effective on Thursday next week, at which point Karora shareholders will receive 2.524 Westgold Resources (ASX: WGX) shares, C$0.608 (AU$0.67) in cash and 30 per cent of a share in Culico Metals – a wholly-owned subsidiary of Karora – for every share held.
The last outstanding condition is final Toronto Stock Exchange (TSX) approval, expected to be granted next Friday, after which Karora shares will cease to trade on the TSX. Westgold shares will then start trading on the TSX at market open on August 6.
Through its ownership of the Spargo, HGO and Beta Hunt mines in Western Australia’s Goldfields region, Karora contributes an immediate gold production of 180,000 ounces at a cost of about US$1350 (AU$2100) per ounce to the combined entity.
When combined with Westgold’s existing annual production of 227,000 ounces at a similar cost, the strategic significance of the upcoming $2.5 billion merger with Karora Resources becomes evident. The merger, as highlighted by management, positions the newly-expanded “Westgold 3.0” as one of Australia’s top five gold companies, boasting a robust production profile of more than 400,000 ounces annually.
Adding to the value proposition of the merger story, Westgold has also identified substantial savings that could be delivered from trimming its corporate overhead to the tune of $281 million, in addition to $209 million in operating costs in the next decade.
And with the conclusion of its zero-cost collars at the end of the previous quarter, Westgold is now fully exposed to movements in the gold price. It puts the company in an almost unique position as an unhedged mid-tier player in the Australian gold industry, with substantial leverage to a gold price that continues to remain persistently strong.
Given the multiple benefits that the merger promises to deliver, the motto of Westgold 3.0, to paraphrase the great Tim Shaw of Demtel advertising fame, could easily be, “But wait there’s more!”. But really, as a 100 per cent unhedged gold company that will nearly double production almost immediately to 400,000 ounces and with nearly $270 million in cash and bullion to its name and plenty of exploration upside, what more could the average punter ask for?
Is your ASX-listed company doing something interesting? Contact: office@bullsnbears.com.au