Red 5 (ASX: RED) and Silver Lake Resources (ASX: SLR) have agreed to a $2.2 billion merger, creating a 445,000-ounce per annum mid-tier gold company.
The companies have entered into a binding scheme implementation deed, under which the merger will take place via a Silver Lake scheme of arrangement.
Under the terms of the transaction, Red 5 will acquire 100% of the shares in Silver Lake and each Silver Lake shareholder will receive 3.434 Red 5 shares for every Silver Lake share held.
Upon implementation of the transaction, Red 5 shareholders will own 51.7% of the merged entity and Silver Lake shareholders will own the remaining 48.3%.
The combined entity will be led by Russell Clark as chair, with Luke Tonkin as managing director and chief executive officer.
The new board of directors of the combined entity will comprise four directors from each of the current Red 5 and Silver Lake boards.
“This transaction represents a logical merger of two leading mid-tier gold companies and represents an exciting inflection point for Red 5 shareholders following the successful development ramp-up and achieving steady-state production at King of the Hills,” Mr Williams said.
“The merger creates a ~445,000-ozpa diversified gold producer with assets in tier one jurisdictions.”
“With a sector-leading balance sheet, the merged entity provides a strong foundation for future growth.”
Sustainable production profile
Silver Lake managing director Luke Tonkin said the merged group would have a sector-leading net cash and listed investments position of $378 million, with strong near-term cash flow generation and a long mine life asset to drive sustainable production through the cycle.
“This transaction represents a highly-complementary combination of assets and balance sheets for the mutual benefit of both Silver Lake and Red 5 shareholders,” he said.
“Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here.”
“The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth.”
The merged entity will have a significant ore reserve and mineral resource inventory of 4.0Moz and 12.4Moz respectively.
Red 5’s share price rose 1.5% after news of the deal broke, while Silver Lake’s share price fell by 12.6%.
Strong quarterly performance
Red 5 recently reported it had achieved gold production of 53,017oz for the December 2023 quarter from the King of the Hills gold project in Western Australia.
Production for the first half of FY24 was 108,026oz and the strong December quarter performance marked the third successive quarter of production above 50,000oz.
The company said the first-half performance put it firmly on track to achieve the upper end of its FY24 production guidance of 195,000oz – 215,0000z.
Robust cash generation during the quarter also allowed the company to make a further voluntary additional debt repayment of $2m in addition to the scheduled $8m principal repayment – helping to further de-risk and strengthen its balance sheet.