Westgold slides into Gascoyne's DMs to scupper Firefly deal

Peter Cook-chaired Westgold Resources (ASX:WGX) has slid in with an unsolicited bid to scupper Gascoyne Resources’ (ASX:GCY) proposed merger with Firefly Resources (ASX:FFR) in an effort to become a 500,000ozpa gold producer.

If successful the proposed takeover offer would position Westgold as Australia’s fifth largest gold producer and the dominant gold miner in WA’s historic Mid-West region, with proforma 2022 gold production of 350,000oz and a pathway towards more than 500,000ozpa with a processing network of four mills and 6.5Mtpa of capacity.

It would involve the cancellation of Gascoyne’s merger with Firefly, which Westgold claims is dilutive and does not represent value for Gascoyne shareholders.

Westgold, which owns the Cue, Meekatharra and Fortnum gold projects, would offer one Westgold share for every four shares held by Gascoyne investors, a 34.7% premium to its closing price on Wednesday.

While Gascoyne has told its shareholders to take no action, the news has been well received, sending the Dalgaranga gold mine owner’s shares soaring 21% to 37.5c.

Westgold stock fell 1.8% on the announcement, while Firefly copped a big whack from the revelation a much larger shark had entered the pool, down 17.5% at 12pm AEST to 9.9c. That is significantly below the implied 14.5c a share value attributed to Firefly shareholders in the original deal.

Gascoyne deal parties share prices today:

The Firefly deal

Firefly owns the 196,000oz Yalgoo gold project, around 110km from Gascoyne’s Dalgaranga plant.

Its friendly scheme of arrangement with Gascoyne, which would give Firefly shareholders around 32.4% of the combined entity, was announced in June.

The scheme booklet has been submitted to ASIC, with shareholders due to the vote on the scheme on October 21.

An independent expert’s report from BDO declared the merger ‘fair and reasonable’.

Westgold on the other hand will pitch to Gascoyne shareholders that the Firefly deal dilutes them and undervalues the company for the sake of acquiring an early stage and undeveloped resource.

“After several tumultuous years the Gascoyne shareholders now see their company at the crossroads yet again,” Westgold executive director Wayne Bramwell said.

“The Independent Technical Assessment and Valuation Report in the proposed Firefly Scheme sees Gascoyne merge with a junior explorer offering all the risks associated with early-stage exploration assets.”

“The Firefly Scheme evidences the cost of the transaction is large to Gascoyne shareholders, and the independent valuations of the Firefly mineral assets are significantly lower than the price the Gascoyne Board has agreed to pay.”

Gascoyne a long-running hard luck story

Gascoyne Resources has had an invidious history since emerging as the next mid-tier gold miner around 2016 with at the Dalgaranga mine near Mt Magnet in WA.

It initially struggled to extract as much gold as promised and fell into financial strife, entering into adminstration in mid 2019.

It was eventually recapitalised through a $125 million package in a deed of company arrangement.

Gascoyne expects to produce 70,000-80,000oz at Dalgaranga in FY2022 at AISC of $1600-1700, but also revealed it would cop a roughly $80 million non-cash impairment expense on its flagship asset in June.

Westgold’s Bramwell said sweep provisions held by Gascoyne’s lenders also left it exposed.

“Gascoyne’s recently announced financial statements shows that in the last 12 months Gascoyne raised a net $85.2 million in new share issues, then was forced to impair its assets by $80.2 million, again in Westgold’s view, destroying value for its shareholders,” he said.

“The financial statements also detail the Gascoyne’s debt burden to its secured and unsecured lenders and their rights to sweep most of Gascoyne’s free cash. It is unclear how the Firefly Scheme will remove these burdens.”

Westgold’s intention to bid “provides a clear and logical alternative that reduces uncertainty and risk around the longevity of the Dalgaranga mine, the future of Mt Egerton and Glenburgh and the ongoing funding risks to Gascoyne shareholders,” he said.

“The combination of Westgold and Gascoyne is strategic and value accretive for both groups, as we believe the regional integration of mining, processing infrastructure, exploration assets and people can rapidly expand production capacity above 350,000 oz per annum with excess ore from Westgold’s Cue operations extending Dalgaranga’s operating life.”