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November 10, 2024
PI Global Investments
Silver

WA gold miners Silver Lake, Red5 ink $2.2b ‘merger of equals’


“As the acquirer, we wouldn’t normally have a fiduciary out,” Mr Clark said, referring to Red 5 ultimately holding 51.7 per cent in the proposed merged miner. “But that’s something that the Red board insisted on, and took some time to get. So there is an opportunity, should someone decide to bid Red 5, they can do so.”

The Gwalia acquisition was a central plank in Mr Finlayson’s plan to consolidate the fragmented gold mining district around Leonora. However, he was able to secure the asset only after a hard-fought bidding war with Silver Lake.

‘Modest’ implied premium

Silver Lake investors were unsettled by the news of the merger. Shares in the gold miner, which operates the Deflector and Mount Monger projects, sank 11 per cent to $1.12 after the proposed merger was unveiled to the market on Monday. Shares in Red 5 edged 3 per cent higher to 34¢.

Moelis analyst Paul Hissey said the implied premium of the merger was “modest” by gold industry standards. The proposed deal comes as the Australian gold price hovers around $3130 per ounce, close to records. The global gold price is $US2039 per ounce. The record high was just over $US2100 per ounce in December.

Under the deal term sheet, released to the market on Monday, Red 5 shareholders will acquire 51.7 per cent of the merged entity. Silver Lake shareholders will own the remaining 48.3 per cent. This means, in return for Red 5 acquiring all of Silver Lake’s float, each Silver Lake shareholder will receive 3.4 Red 5 shares.

This values Silver Lake at $1.1 billion, based on Red 5’s closing price of 33¢ per share on Friday, which is a 10 per cent discount to Silver Lake’s market cap on Friday of $1.2 billion, according to Paul Kaner, an analyst at Ord Minnett.

Mr Hissey said he did not expect a rival bid from Genesis in the near future.

“Genesis has repeatedly stated that it has all the assets it needs to meet its stated 300,000 ounces production target, in what I take as an explicit rejection of further M&A plans. Red 5’s asset has a long mine life, so there may well be opportunities for consolidation on a three-to-five-year view,” he said.

“I also think it is more difficult for Genesis to fund a bid right now given they are at a much earlier stage in their corporate development.

“I think geographically Genesis is likely to generate more synergy from King of the Hills given the proximity. However, in the near term there are some obvious corporate synergies between Silver Lake and Red 5.”

Mr Clark will become chairman of the combined entity. Silver Lake boss Luke Tonkin will be managing director and chief executive of the $2.2 billion group.



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