In a recent development within the gold sector, Westgold Resources (ASX:WGX) has announced its acquisition of Karora Resources, merely 11 days after Ramelius Resources (ASX:RMS) abandoned its pursuit of the Canadian-based Australian gold company. Ramelius’ decision to call off the deal was attributed to stretched valuations, despite the company enjoying favorable mining grounds and record-high gold prices, poised to yield record profits by June 30.
The move by Westgold marks a strategic endeavor to bolster its position in the industry, creating a new “400,000 ounce mid-tier Australian gold producer.” The acquisition, announced via a statement to the ASX on Monday, involves a combination of paper and cash considerations. Westgold shareholders are set to own 50.1% of the newly formed entity, which will be established through a Canadian statutory plan of arrangement, akin to a scheme of arrangement in Australia.
The deal has garnered support from approximately 10% of Karora’s shares held by its board, management, and institutional shareholders. Under the terms of the offer, Karora shareholders will receive 2.524 Westgold fully paid ordinary shares, $A0.68 ($C0.612) in cash, and 0.30 shares in a new company to be spun off from Karora for each Karora share held at the transaction’s closing.
This offer, translating to approximately $A6.60 ($C5.902) per Karora share, represents a 10.1% premium to Karora’s closing share price on the Toronto Stock Exchange as of April 2024. Additionally, it signifies an 18.9% premium to Karora’s 20-day volume-weighted average price on the TSX leading up to April 5, 2024.
The new entity, termed Enlarged Westgold, is projected to have a market value of approximately $A2.2 billion, boasting a portfolio capable of producing over 400,000 ounces per annum from its Western Australian assets. With a clear pipeline of growth projects and high-quality exploration targets, Enlarged Westgold anticipates financial resources amounting to around A$160 million (C$143 million), subject to requisite consents.
Directors and senior management members of Karora holding 1.2% of its outstanding shares have entered into voting support agreements in favor of the transaction. Furthermore, key institutional shareholders, representing approximately 9% of Karora’s shareholding, including prominent investor Eric Sprott, have also expressed support for the deal.
Pending regulatory approvals, the transaction is expected to conclude in late July, with detailed documentation, court hearings, and shareholder meetings scheduled to commence in June. Notably, proceedings will be conducted under Canadian law, limiting the scope for interference or opposition from Australian stakeholders.
In summary, Westgold’s acquisition of Karora Resources underscores the continued dynamism within the gold sector, with companies seeking strategic consolidation to enhance their market position amidst evolving industry dynamics.
