Ground Breakers: Gwalia love triangle rolls on with new Silver Lake offer and New Hope hits up China with a wyd?

Silver Lake throws more cash into Gwalia offer to try gazump Genesis bid
St Barbara is trying to sell the underperforming Leonora gold mine, with both SLR and GMD now offering $370m in cash along with scrip
New Hope resumes coal sales to China

No one looks like they’re ready to quit in the game of chicken over the underperforming Gwalia gold mine, after Silver Lake Resources (ASX:SLR) tossed another $44 million into their offer to gazump Raleigh Finlayson and Genesis Minerals (ASX:GMD) to acquire the historic asset.

SLR says its new proposal is now worth $722 million to St Barbara (ASX:SBM) and its shareholders, including 327.1m shares worth $352m and $370m of cash — the same cash quantum as the Genesis offer — up from $326m previously.

It came after Genesis improved its terms last week, removing the condition on some of the scrip it planned to offer in its agreed transaction with SBM’s board.

The prize here is St Barbara’s Leonora operations and its Gwalia mine and mill. The project was opened, in its original incarnation, in the late 1890s under the stewardship of mine manager and future US President Herbert Hoover.

It was closed in 1963 as gold prices crashed, which saw the population of the now ghost town around the mine fall from 1200 to 40 within three weeks, but was revived by Sons of Gwalia in the 1980s — run by Finlayson’s uncles Peter and Chris Lalor — before another revival as a high grade underground operation under St Barbara from the mid-2000s.

The age of the operation means it is extraordinarily deep and increasingly complex to mine.

Formerly a more than 300,000ozpa producer and one of the lowest cost operations in Australia a few years ago, Gwalia is on track to produce just 130-135,000oz this financial year and turned out 30,942oz at all in sustaining costs of $2809/oz in the March quarter, a slim margin even at current gold prices in excess of $3000/oz.

What does St Barbara need to consider?

At a market cap of almost $1 billion and a production profile in excess of 250,000ozpa, Silver Lake is by far the larger player in the corporate love triangle.

SLR, which says it tried unsuccessfully to engage with SBM’s board even before an initial merger and since amended merger between Genesis and St Barbara was announced in December, says its deal will provide shareholders in the company with access to a larger and more liquid gold play.

“The Improved Silver Lake Proposal provides equivalent cash consideration to the Genesis Proposal, in addition to continuing to provide St Barbara shareholders with immediate exposure to a larger, more liquid and diverse gold business with increased leverage to the Australian dollar gold price and a robust balance sheet with strong forecast operating cash flow following a period of significant investment in H1 FY23 to support the growth profile,” SLR said this morning.

Genesis, meanwhile, which needs the approval of its shareholders to complete the transaction, says its Top 20 shareholders, representing 49% of its stock, have all indicated their support for its proposal ahead of a meeting to vote on the acquisition on June 20.

The targeted completion date of June 30 is one reason SBM has previously regarded Genesis’ bids in a more positive light. Its board has a cash flow problem it would love to solve before the financial year is up.

Silver Lake downplayed that concern today. They say it only impacts on the GMD deal if the proposal is regarded by St Barbara’s board as a superior offer.

“Unlike the Genesis Proposal, the Improved Silver Lake Proposal does not impose a penalty on St Barbara if its shareholders do not approve the proposed transaction prior to 30 June 2023,” SLR, which rates its proposal as a 15.8% premium on most recent closing prices, said.

“In this regard, Silver Lake notes that its publicly stated interest in providing a competing proposal to the Genesis Proposal appears to have been the catalyst for St Barbara being able to secure improved transaction terms from Genesis.”

Genesis, however, has the argument that its assets are a better match for Gwalia in location and nature. Silver Lake’s Mount Monger and Deflector mines are in different gold fields with their own mills.

Genesis meanwhile would pair Gwalia with its new Ulysses underground development 30km to the south and have two mills to provide processing options and potentially underpin more consolidation in the region, given its majority ownership of Dacian Gold (ASX:DCN), holder of the mothballed Mount Morgans mine and mill nearby.

Investors don’t seem overly enthused with the shenanigans. Silver Lake shares are down over 12% in the past month, outpacing a 4.35% fall over the same period for the All Ords gold sub-index.

Genesis shares have fallen around the same amount, with both in negative territory this morning. This is all positive for SBM shareholders though, with Silver Lake’s revised offer (its third all up) pushing the company’s shares up 3.76%.

Once the mine is sold the company will be debt-free with liquidity to pursue a turnaround at its Atlantic gold operations in Canada and Simberi in PNG.

Gwalia love triangle share prices today:

New Hope courts China as coal quality premium narrows

New Hope Corp (ASX:NHC) has given an insight into the shifting sands of the energy coal export market and the strong profits still being generated by coal miners despite a large drop in seaborne prices so far in 2023.

After charging to over US$450/t, spot prices have returned to a high but more normal level.

Its April quarter (NHC has an idiosyncratic reporting schedule), saw New Hope deliver underlying EBITDA of $448.1m, up 14.8% on January and 20.6% ahead of the same period last year.

That was driven by strong sales from its Bengalla mine of 2.15Mt, up 46.9% against January after the impact of heavy rainfall that seemed to curb exports out of Newcastle and the Hunter Valley for living memory subsided.

Cashed up NHC still has $827m in the bank even after dropping $348.8m in an interim and special dividend for the first half of FY23.

Coal prices have come down, with the GlobalCoal Newcastle 6000kcal index down 38.5% YoY to US$191.8/t (a 48.1% fall quarter on quarter) thanks to a mild winter in the Northern Hemisphere.

The Japan reference price for 6322kcal/kg coal was set at US$199.9/t from April 1, not a price any coal miner would have moaned about two years ago.

Interestingly, a narrowing price spread between 6000 and 5500kcal coal as import restrictions on Australian coal in China have wound up has seen NHC return to the market there. China typically burns lower grade thermal coal than blue chip customers in markets like Taiwan, Japan and Korea.

“With import restrictions on Australian coal into China being lifted and the spread between 6000 and 5500 kcal/kg NAR products narrowing, we have refreshed our relationships into the Chinese market and completed our first sales which will be delivered in the next quarter,” NHC told shareholders.

“The robust demand from China of lower energy product has provided an outlet for a portion of our coal over the low season. Imports in key markets are expected to increase in the coming months, with continued tight global supply expected to provide support to pricing for higher CV coal.

“The outlook for the remainder of calendar year 2023 remains positive, with market forwards continuing to show a contango.”

On an operational front NHC has seen the first coal produced from its 15% owned Malabar Resources and its Maxwell mine, but it’s facing more delays with the reopening of its New Acland coal mine in Queensland after the Oakey Coal Action Alliance got the Environmental Defender’s Office on board to challenge an associated water licence granted by the Queensland Government.