The proposed merger between two WA gold producers — Silver Lake Resources and Doray Minerals — just got another seal of approval.

Doray (ASX: DRM) announced this morning that it had received the go-ahead from Perennial Value Management, the largest shareholder in the company with a 12.94 per cent stake.

The deal was initially tabled last November, as an effective way for the two companies to diversify their operations with a stronger balance sheet.

The merger will combine Doray’s 85,000 oz per year Deflector mine and Silver Lake’s 150,000 oz per year Mt Monger operations.

Under the terms of the scheme of arrangement, Silver Lake is offering 0.6772 of a Silver Lake share for every one Doray share.

Holders of Doray options will receive $0.0781 cash for every one Doray scheme option they own.

Post-merger, Doray shareholders will hold 37.77 per cent of the enlarged Silver Lake group.

Strong momentum

Since early February, shares in both Doray and Silver Lake have risen by around 40 per cent.

Doray’s operating Deflector mine produces around 85,000 oz of gold per year, and recent exploration near the site has revealed more copper and gold deposits with good grades of mineralisation.

The merged entity is expected to have full-year production capacity of 240,000 oz.

On February 15 the WA Supreme Court approved the release of the scheme booklet and ordered that Doray convene meetings of its shareholders and options holders.

For observers of the proposed transaction, the next key date is March 22 when Doray will convene a meeting of its shareholders to vote on the proposed merger at 10am Perth time.

In addition to Perennial, the directors of Doray “also intend to vote their shares in favour of the Share Scheme,” the company said.

“The merged group is expected to receive increased investor interest due to operational diversity, strong free cash flow generation and the balance sheet strength to pursue and fund growth opportunities,” said Doray managing director Leigh Junk.