Monsters of Rock: Westgold, Karora merger to create new 400,000oz per annum gold producer on the ASX

Westgold (ASX:WGX) will acquire fellow WA-focused gold producer Karora (TSX:KRR) to create a top 5,400,000ozpa Australian miner
Deal backed by both boards, plus famous gold bug and long term KRR holder Eric Sprott
WGX boss Wayne Bramwell believes Beta Hunt’s upside is the ‘real prize’
Silver Lake ends quarter with $508m in cash, bullion, and investments

Westgold (ASX:WGX) will acquire fellow WA-focused gold producer Karora (TSX:KRR) to create a top 5,400,000ozpa Australian miner.

The dust had barely settled on Ramelius Resources’ (ASX:RMS) aborted bid for Sprott-backed KRR when the proposed acquisition was announced today.

Shareholders in KRR – which owns the low-cost Beta Hunt and Higginsville operations – will receive 2.524 WGX shares equating to A$5.755, plus A68c cash and 0.30 of a share in SpinCo with an implied value of A$0.164 (C$0.147) per KRR share held.

All up, this is worth ~A$6.60/sh to KRR holders, a 10% premium to the last closing price.

Famous gold bug and long-term KRR holder Eric Sprott has already indicated he will support the deal. It also has the blessing of both boards.

Vaulting into the ASX mid-tier

It’s a recent high point for once maligned and heavily hedged WGX, which fell below $500m market cap in 2022 after recording a $110m loss and dumping a short-lived dividend. Hedges are now cleared, which means WGX is fully exposed to the record spot gold price.

400,000ozpa of pro-forma production also propels the WGX/KRR tie-up into rarefied air.

With the Aussie mid-tier plundered by merger and acquisition action in recent years, only Regis (ASX:RGL) and the enlarged Red 5 (ASX:RED) – which recently announced plans to acquire Silverlake (ASX:SLR) – are in its peer group.

RGL is worth $1.6bn, while RED’s pro-forma market cap post acquisition was estimated at +$2.2bn in February.

WGX has estimated a similar pro-forma market cap of A$2.2bn, with WGX shareholders to own 50.1% and KKR 49.9% of the combined, dual listed entity.

“This merger has scale, it has funding, enhanced capability, and most crucially, the expanded business is fully leveraged to the gold price,” says WGX boss Wayne Bramwell, who believes Beta Hunt’s upside is the ‘real prize’.

READ: Just feast your eyes on this giant nugget from the Beta Hunt mine

“This whole merger has been largely about Beta Hunt. We see being able to lift the tonnage and the grade after we invest some drill metres,” Bramwell says.

The merged entity could also save $60-$70m every year, KRR chairman and CEO Paul Andre Huet says.

“I was on a call earlier today with [our No2 shareholder] Eric Sprott and he brought this up to me: ‘synergies, for me as a shareholder, return right back into the drill bit or right back into value on a per share basis’,” Huet says.

“That’s what we are looking at here.”

$1.1bn-capped WGX was down marginally on the news.

NOW READ: When it comes to returns, small cap acquisitions kick large cap M&A to the kerb: RFC Ambrian

WGX share price chart

Silverlake ends quarter with $508m in cash, bullion, and investments

SLR produced over 64,000oz gold and 338t copper in the March quarter, with both the Mount Monger and Deflector operations “well positioned to meet the top end of their respective guidance ranges”.

The miner – which will be acquired by RED around June to create a $2.2bn capped, +445,000ozpa producer – now has a cash and bullion hoard worth $342m and listed investments worth $166m.

It also has no debt.

Meanwhile RED says its fourth consecutive +50,000oz quarter puts it back on track to deliver the upper end of FY24 production guidance (195,000 – 215,000oz). Net debt has been reduced by another $41.9m.

Unlike WGX and KRR, RED and SLR still have substantial hedge positions.

While SLR’s aren’t too bad – 100,000oz at A$3,007/oz – RED has 256,439oz to deliver at average of A$2,584/oz between Jan 2024-Sept 2026.