After Northern Star's $5bn De Grey move, what's coming next?

Northern Star has finally pulled the trigger on a highly anticipated deal – the purchase of perennial takeover target De Grey Mining with a $5bn offer.

DataRoom [at The Australian] reported last month that Northern Star was in a strong position for a buyout, with $358m of net cash, and the most logical target was De Grey, with which the share price movements were somewhat aligned.

There has been chatter for some time Northern Star could have been positioning for a major acquisition, but it wanted to take its time to ensure its mammoth Super Pit gold mine in Kalgoorlie was running well and the expansion of the mine’s mill was on track. But at the August Diggers and Dealers mining conference in Kalgoorlie, investors were satisfied after site tours that was the case.

The mill expansion is well advanced – 77 per cent of engineering and design is complete, 84 per cent of procurement contracts have been awarded and construction is on schedule.

De Grey has been an obvious target also for Agnico Eagle as well as Northern Star, and the target was said to have recently opened up a data room for at least one interested buyer.

At Diggers and Dealers, sources said suitors would want more certainty surrounding its flagship Hemi project, 85km south of Port Hedland, before making a move. But others believed now was the right time and a takeover made sense, because the buyer could influence the outcome of the development.

There’s some concern, though, that federal government approval could be delayed for Hemi, which is produce 530,000 ounces of gold a year.

Hemi started in mid-2024 and the first gold production is expected in mid-2026, with its Final Investment Decision subject to finalisation of project approvals and project debt financing.

Northern Star shares on Monday closed down 5.3 per cent to $16.59 on the announcement it was offering $2.08 per share in a scrip transaction that sees De Grey shareholders receive 0.119 new Northern Star share for each share held, and an overall hold of almost 20 per cent of the combined group.

Part of that was related to arbitrage trading and many agree the overall logic of the deal makes sense, creating an ASX-listed gold mining powerhouse to fill the hole that Newcrest Mining left when purchased by
Newmont.

Both Barrick and Agnico Eagle are believed to have eyed up De Grey, which is supporting the Northern Star offer.

De Grey’s Hemi mining deposit is of a particularly high grade. The Hemi gold discovery in the Pilbara is capable of producing 11 million ounces of gold, with capital spending requirements of close to $1bn.

Now the question is what Gold Road Resources does with its 17.3 per cent stake in De Grey.

DataRoom understands that Northern Star has approached Gold Road in the past about buying the interest, but sources say Gold Road was more keen to find a buyer for the company as a whole and Northern Star would not offer enough to gain the stake in isolation.

Based on the chatter in the market, it would suggest that Northern Star did not discuss its move on De Grey with Gold Road before the latest offer.

Gold Road may now shop its De Grey interest – seen as big enough to block a Northern Star vote gaining approval – to various groups, including Agnico Eagle, which may lob a rival offer or just opt to block the deal with the interest until the share price falls and it can come back.

But many in the market believe Northern Star is offering a full price at a 37 per cent premium to the $1.52 share price on November 29.

They down play the chances of Agnico Eagle being an interloper, despite being at least double the size of the $20bn Northern Star with a $US42bn market value.

Should Gold Road accept the offer, it has suddenly got a whole lot more cash it can secure with a block trade out of Northern Star (its interest would be worth $865m).

Shareholders have been uneasy about Gold Road embarking on acquisitions, and would almost certainly call for capital returns.

But Gold Road, along with Regis Resources with which it held merger talks in the past, are both shaping up to be serious contenders for EMR Capital’s $2bn Ravenswood gold mine, for which bids are due in February.

Working for Northern Star on its $5bn scrip bid is Macquarie Capital, while De Grey Mining is using Azure Capital, Barrenjoey and Barclays.

This article first appeared in The Australian.