Westgold Resources (ASX: WGX) and Karora Resources (TSX: KRR) have agreed to merge under Westgold’s banner, with the merged entity potentially producing a whopping 400,000 ounces of gold per year from a combined 13 million ounce resource and more than 3 million ounce reserve. Westgold proposes to dual list on the Australian and Canadian stock exchanges with a view to receiving a significant re-rating by the market of the merged companies.
Westgold will acquire 100 per cent of Karora’s shares by way of a statutory plan of arrangement under the Canada Business Corporations Act.
Karora shareholders will receive 2.524 Westgold fully paid shares plus 68c in cash for each Karora share. In addition, they will receive 0.3 of a share in a new company to be de-merged from Karora, “SpinCo”, for each Karora share they own.
SpinCo’s assets comprise a 22.1 per cent interest in ASX-listed Kali Metals, a 1 per cent lithium royalty on certain Kali mining interests, rights to a potential deferred consideration payment for the sale of an asset and $6 million in cash.
The full offer consideration represents about $6.60 per Karora share based on Westgold’s closing share price of $2.28 on April 5. This equates to a 10.1 per cent premium to Karora’s closing price of C$5.36 (AU$5.995) on April 5th and 18.9 per cent premium to Karora’s 20-day volume weighted average price on the Toronto stock exchange (TSX) of C$4.964 (AU$5.552) up to and including April 5th.
Upon completion of the transaction, Westgold shareholders will own 50.1 per cent of the combined company and former Karora shareholders will own 49.9 per cent. A meeting of Karora shareholders is expected to occur mid-July and will require the approval from holders of two-thirds of its eligible shares, in addition to various stock exchange and Canadian court approvals.
The prize here is Beta Hunt’s gold potential. Rarely do you find a gold asset of the quality and potential of Beta Hunt hiding in a nickel belt and drilling is expected to further unlock value at this mine.
Westgold Resources managing director and chief executive officer Wayne Bramwell
We have delivered value to shareholders through a disciplined growth approach by investing in our cornerstone asset in Beta Hunt, which will be fully ramped up to 2 Million tonnes per annum later this year, our pipeline of projects at Higginsville and through strategic asset acquisitions such as the Lakewood Mill and Spargo’s Gold Mine.
Karora Resources chairman and chief executive officer Paul Huet
The merger will combine gold production across several historic WA goldfields with the merged company still exclusively operating within WA. It says it will be fully leveraged to the gold price having no fixed forward sales at reduced gold prices.
Westgold will be well-funded with about $160 million and will be targeting potential synergies of $490 million. It expects the increased production to deliver strong and sustainable free cash flows.
The merged Westgold entity will kick the door in at the top five Australian gold producers club based on today’s combined market caps of the two companies, totalling about $2.2 billion. It believes there is growth potential in gold through both greenfields and brownfields exploration, with the added potential for nickel from existing tenements.
The merger will bring the renowned gold projects of Big Bell, Beta Hunt, the emerging Bluebird and the Great Fingall mine all under the one ownership umbrella.
The company says it is well placed to grow its resource base, having a highly prospective land package of about 3200 sq km, in addition to the near-term growth potential of Beta Hunt’s Fletcher zone.
Management says it will now have five mills with processing capacity of 6.9 million tonnes per annum and plans to increase its owner-miner capability, leveraging its mining and drilling fleet with Karora’s newly purchased equipment.
Westgold has an appetite for growing its gold resources both with the drill bit and in the board room and if all the synergies expected from this deal eventuate it will be well on its way to becoming a serious cash box at a time when the gold price is hitting its straps.
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