Will it be a case of goodbye Hoover House this morning when Genesis Minerals and its would-be deal partner St Barbara emerge from trading halts that have been in place since April 4?
Statements from both companies revealing the reshaped deal are expected to be out before trading today ahead of the lifting of the trading halts.
Both companies went into the halts to allow a renegotiation of the complex deal that would have seen St Barbara takeover the stronger Genesis, then once merged, spin off its unwanted offshore gold mining assets.
The new round of talks was aimed at trying to find a way to keep the original plan, revealed in late 2022 which would have seen the creation of a new miner called Hoover House.
But problems at St Barbara’s key WA mine in the March quarter and a rising debt burden for the company wrecked the original deal. That forced the trading halts and new talks which went nowhere up to late last week when news of a new arrangement emerged.
As a result, the Kerry Stokes-backed Genesis Minerals is now willing to pay around $600 million to try and keep its Hoover House idea alive by buying the WA assets of St Barbara in a cash and scrip deal.
Genesis will raise the cash in two parts, through an accelerated $50 million placement, and then a second tranche of $400 million if shareholders of both companies approve the deal.
Under the original deal Genesis was to raise $275 million in a placement conditional on the deal closing. That has now been replaced by up to $450 million which tells us how badly St Barbara’s financial position is.
The deal recasts the original idea of St Barbara taking over Genesis and spinning off those non-WA assets of St Barbara into a company called Phoenician Metals.
Genesis is planning a $450 million placement to investors to help pay for St Barbara and fix those production woes which undermined the Hoover House deal’s aim to consolidate gold mining in the Leonora district of WA’s Eastern Goldfields.
Market reports said the raising was priced at $1.15 a share, a 4.5% premium to the last traded price of Genesis shares ($1.10) before trading was halted earlier this month.
The new plan follows weeks of negotiations to restructure the agreement with St Barbara to find a way to make the consolidation of the Leonora district work.
Genesis will offer cash and shares to St Barbara to buy the company’s Gwalia mine and other nearby gold deposits in the Leonora district.
Mining, grades and other problems at the Gawlia mine in the March quarter finally forced the two companies to halt the first shape of the deal and start a renegotiation.
Those problems at the Gwalia mine forced St Barbara to slash its financial year output its annual guidance by up to 30,000 ounces which had the effect of undermining the whole deal as St Barbara’s cash flows came under enormous pressure.
St Barbara finished the March quarter with only $7 million in cash attributable to its Australian assets, and $60 million in total, and the company pointed to the risk that it could eventually fall into a breach of the terms of its earlier agreement with Genesis that it would have no more than $163.2 million in net debt at the close of the merger deal.
St Barbara is reported to have agreed to accept upfront cash of $370 million, Genesis shares worth $170 million at $1.15 a share, with an additional $60 million worth Genesis shares due when the satellite deposit Tower Hill first produces ore.
That’s $600 million in value but St Barbara had a market value of $527 million (64 cents a share) when trading was also halted on April 4.
The new deal would give St Barbara about 20% of Genesis shares, almost half the original 38% that St Barbara shareholders would have owned in the original Hoover House idea.
Analysts say the cash component would be enough to rid St Barbara of its debt problems, and to pursue the further development of its PNG and Canadian assets.
That is odd as St Barbara was reviewing the future ownership of the Simberi mine in PNG before the Hoover House idea emerged and the Canadian mine assets were looking increasingly marginal.
