Westgold Resources and Karora unite to forge $2.2b gold mining giant

Australian gold producer Westgold Resources (ASX: WGX) is set to merge with Canadian-based Karora Resources to create a 400,000-plus ounce per annum mining company with a market capitalisation of $2.2 billion.

Under the terms of the merger, Westgold will acquire 100% of the issued and outstanding common shares of Karora by way of a statutory plan of arrangement under the Canada Business Corporations Act.

Karora shareholders will receive 2.524 Westgold shares and A$0.68 in cash for each Karora share held as well as 0.30 of a share in a new company to be spun-out of Karora with selected assets.

The spin-out will comprise Karora’s existing 22.1% interest in Kali Metals (ASX: KM1) and a 1% lithium royalty on certain mining interests held by Kali, the right to receive a deferred consideration payment relating to the divestment in 2020 of its 28% stake in the Dumont nickel-cobalt-PGM project in Quebec and $6 million in cash.

The spin-out will be wholly-owned by existing Karora shareholders.

Merger consideration

Consideration for the merger represents approximately $6.60 per Karora share based on Westgold’s closing price of $2.28 on 5 April.

Upon completion of the transaction, Westgold shareholders will own 50.1% of the combined company while former Karora shareholders will own the remaining 49.9%.

The merged entity will have a portfolio of assets capable of producing more than 400,000ozpa from an exclusively Western Australian asset base, as well as a pipeline of growth projects and exploration targets supported by financial resources of approximately $160m.

The transaction has been unanimously approved by the Westgold and Karora boards.

Karora’s board has recommended that shareholders vote in favour of the deal.

Westgold intends to undertake a secondary listing on the Toronto Stock Exchange on completion of the transaction.

Transformational step

The merger of Westgold and Karora represents a “transformational step change” in growth for both companies.

It is expected to create a mid-tier gold producer operating exclusively in Western Australia with a portfolio comprising Karora’s Beta Hunt and Higginsville properties and Westgold’s Murchison and Bryah projects.

It will be among the top five largest ASX-listed Australian gold producers based on market capitalisation with combined ore reserves of 3.2Moz and mineral resources of 13Moz.

The merger will generate operating synergies of $209m and estimated corporate savings of $281m to create one of the largest Australian gold producers providing investors with full exposure to the gold price.

‘Gold mining powerhouse’

Westgold managing director Wayne Bramwell welcomed the addition of Karora’s assets, particularly the cornerstone Beta Hunt mine where production will be ramped up to 2 million tonnes per annum this year.

“This merger brings Beta Hunt together with Big Bell, the emerging Bluebird and the iconic Great Fingall mine under one Australian management team,” he said.

“These assets create the foundations of a new Australian gold mining powerhouse which is focused on free cash generation and can stand […] alongside the biggest names in the Australian gold sector.”

The Westgold and Karora teams had independently been structuring the businesses for growth and “now is the time to bring them together”.

“Overprint an experienced and expanded team with similar corporate journeys, strong safety and cultural alignment and a shared commitment to developing its people and we have a new business dominant across two historic, yet underexplored goldfields,” Mr Bramwell said.

“The expanded business will have several large mines, be well funded, fully leveraged to the gold price and have optionality over an enviable selection of growth opportunities.”

“It will also have expanded human and physical resources to extend mine lives and production scale rapidly.”

Strong cultural fit

Karora chair Paul Huet said the merger was beneficial to all parties.

“For the past two years, we have watched Wayne and the Westgold team consistently unlock material value for shareholders,” he said.

“One of the more unique aspects of this transaction is a very strong cultural fit between both companies which will serve shareholders of the merged entity for a very long time.”

“The merger is expected to unlock approximately $490m of operational and capital expenditure synergies while shareholders will become proud owners of the largest unhedged gold producer in Australia.”

“It is certainly a compelling opportunity in the current gold price environment.”