As merger and acquisition activity heats up in the gold space, Silver Lake Resources (ASX: SLR) is the latest gold miner to make a bid, revealing this morning it had made a $52 million takeover play for EganStreet Resources (ASX: EGA).
EganStreet and its largest shareholder Lion Selection Group (ASX: LSX) have welcomed the offer with both boards unanimously recommending shareholders accept Silver Lake’s proposal in the absence of a superior offer.
Under the offer, EganStreet shareholders will receive 0.27 Silver Lake shares for every EganStreet security held.
The offer, which values EganStreet at $0.40 per share, is a 43.4% premium to EganStreet’s 30-day volume weighted average price of $0.279.
Owning 16.2% of EganStreet, Lion Selection has inked a pre-bid acceptance deed and expects to receive $8.5 million from the sale of its stake, which was previously valued at $5.3 million on 30 June 2019 when EganStreet was trading at $0.25 per share.
Takeover rationale: Rothsay gold project
Via its takeover bid, Silver Lake has set its sights on EganStreet’s wholly-owned Rothsay gold project in Western Australia, which has a resource of 1.5 million tonnes grading 9.2 grams per tonne gold for 454,000 ounces of contained metal.
EganStreet has also firmed up JORC reserves for Rothsay of 1.4Mt at 4.4g/t gold for 200,000oz gold.
According to Silver Lake, the project is 85km from its Deflector mine and processing hub and affords the company a near term opportunity to process a higher-grade ore at its upgraded Deflector plant.
“The acquisition of EganStreet and its Rothsay gold project is consistent with Silver Lake’s strategy of creating new opportunities to compete for capital and maximising the value of the existing asset base,” Silver Lake managing director Luke Tonkin said.
“Silver Lake’s nearby infrastructure at Deflector can unlock additional value at Rothsay and this is reflected in the share price premium offered to EganStreet shareholders,” he added.
Unlocking Rothsay’s value
EganStreet managing director Marc Ducler told shareholders the company had decided to accept Silver Lake’s offer after considering a range of factors including “challenges” in locking-in development funding for new projects in the gold sector.
“The board has resolved that the opportunity to combine with a substantial multi-asset gold producer with a strong operational track record in Silver Lake represents an attractive outcome.”
“This transaction will reward our shareholders for the progressed achieved at Rothsay to date, while giving them exposure to a successful ASX-300 gold producer with a strong balance sheet, diversified production profile, mine development expertise, established systems and practices and installed infrastructure.”
He added this would “significantly mitigate” Rothsay’s development risk, while providing exposure to an Australian gold producer with a $1.22 billion market cap that is currently taking advantage of the strong Australian dollar gold price.
The deal remains subject to requisite shareholder and regulatory approvals.
News of the takeover spurred EganStreet’s share price up more than 24% to $0.385 by midday, while Lion Selection’s share price remained unchanged at $0.405 and Silver Lake’s dipped 1.55% to $1.457.