Gwalia's historic State Hotel, located next to the Gwalia gold mine. Pic: John W Banagan/Stone via Getty Images
Mining
After to-ing and fro-ing for two thirds of 2022, gold mining big wig Raleigh Finlayson has come up trumps with just days to spare, securing a nil-premium merger which will give him control of the Gwalia operation once mined by his family.
Goldfields born and raised Finlayson began his career in resources working for his uncles Peter and Chris Lalor at the mine he will now run following successful stints at the helm of Saracen Mineral Holdings and Northern Star Resources (ASX:NST).
A demonstration of the power of personality in the mining game, it caps a remarkable rise for Genesis Minerals (ASX:GMD) since Finlayson re-emerged as the boss of the small cap Leonora explorer last year.
The former Saracen management team which now leads Genesis, also including CFO Morgan Ball and corporate development officer Troy Irvin, will become the key men at the renamed Hoover House — a nod to the bed and breakfast overlooking the Gwalia mine established as the mine manager’s headquarters in the late 1800s and named for its first mine manager, 31st US President Herbert Hoover.
Genesis’ management team bring a history of corporate success to the table, but St Barbara (ASX:SBM) holders will emerge with less of the combined entity despite owning its largest asset and only substantial operating mine.
SBM is down 54% year to date and has been weighed down by both rising costs, labour and technical challenges at Gwalia and underperforming assets at Simberi in PNG and Atlantic in Canada.
Both will be spun out into a new float called Phoenician Metals, 20% owned by Hoover House, after SBM was unable to get attractive terms from buyers on a sale of the Simberi mine.
The scheme of arrangement will see Genesis holders received 2.0338 SBM shares for each GMD unit they hold, getting 41% of the combined company. SBM shareholders will own 38% and participants in a $275 million GMD capital raising will own 22%.
They will include cornerstone placements to AustralianSuper and Resources Capital Fund, and insto placements to Paradice Investment Management, Kerry Stokes’ Australian Capital Equity and Eley Griffiths Group.
The ‘merger of equals’ is the key step in a consolidation play across the historic Leonora gold district, which began when Genesis made a move of struggling gold miner Dacian Gold (ASX:DCN) and its Mt Morgans mill.
GMD now owns 77% of that asset, though Kin Mining (ASX:KIN) has interjected itself in the equation by taking up a stake along with its major shareholder Delphi, while King of the Hills gold mine owner Red 5 (ASX:RED) also hinted at talks with St Barbara.
The Leonora operations are expected to produce 145-160,000oz this financial year, with Hoover House planning to target upwards of 300,000ozpa and deliver a five-year outlook after the merger is completed in the September Quarter of 2023.
The companies say they will have 3.2Moz in ore reserves and 14.7Moz in resources and an NPV on the deal of $200m of post-tax synergies, with the combined entity boasting $187m pro-forma net cash.
A string of investments planned or studied by SBM to expand its milling capacity will also be deferred, reviewed or thrown out the window including a potential $180m mill at the Tower Hill project.
The Hoover House partners say $50-70m of work being considered to expand the Gwalia mill from 1.4Mtpa to 2.1Mtpa will be deferred and reviewed, with a $110-120m bill to establish refractory processing facilities also deferred thanks to the introduction of new free-milling ore from Genesis’ Ulysses deposit.
It will also mean a short-lived tenure for Dan Lougher, the former Western Areas boss only recently announced as SBM’s managing director, who will join the board of the combined entity.
Talking to analysts on a conference call he said the Genesis deal was preferable to a significant capex bill.
Both he and Finlayson noted the distribution of shares in the Phoenician Metals spin off, which receive $65m in working capital from the Genesis cap raising, represented the premium in the deal for SBM holders.
“When you look at the capex bill going forward, you look at the availability of ores around Leonora, the requirement to reset Gwalia mine, which is one of my main focuses right now … the bottom line was that, yes, we could have gone alone … and it would mean that we would need to do a significant raise,” Lougher said.
“When we look at the overall picture though, we can do the Ulysses, it basically brings Gwalia at a lower cost.
“I guess you could argue (St Barbara could have gone it alone), but we believe that this is much cleaner and then allowing the Phoenician Metals to be spun out as a bit of a premium to the St Barbara shareholders and allows us to go back and refocus on bringing in the Tower Hill project based on a revised strategy using the Dacian Mill.”
Finlayson is selling a stronger together mantra, noting the Gwalia project — once a more than 300,000ozpa mine in its own right — has produced 56,000oz in the five months to November 30.
“The other side of the equation is looking at it and going, you can see the stress that Gwalia is under 56,000oz up to November, to be able to take the pressure off that asset by bringing Ulysses on which has got significant life, can share a lot of the equipment and people,” he said.
“So I think that’s actually the benefit to both sets of shareholders that we can’t lose sight of as well. And enables us to properly utilise that plant, which is well suited to both ore bodies.
“And as we’ve said having Mount Morgans to unlock the value of Tower Hill is a significant step change as well. So I think there’s actually two sides here that need to be probably looked at.”
Finlayson noted large SBM shareholders could participate in the cap raising via a potential $39m scale back of AustralianSuper’s $164m cornerstone investment in the raising.
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