Shareholders approve gold merger, creating 2.1Moz company

Special report: Consolidation in the gold sector continues to gain pace, with shareholders in Excelsior Gold (ASX: EXG) today approving the company’s merger with neighbour Spitfire Materials (ASX: SPI).

The deal gives investors another ASX-listed gold company with significant scale and plenty of growth potential via exploration – the two much sought-after ingredients in the market today.

The combined company has a 2.1Moz resource base, giving it the critical mass needed to join the producer ranks next year.

The merger will also allow the two companies to realise the strong synergies that exist between their neighbouring North Kalgoorlie gold projects, located just north of Kalgoorlie within an almost contiguous land-holding of ~200km².

Following the shareholder vote, the scheme now just requires Federal Court approval (which will be sought this Friday) and is expected to be implemented on 3 October.

Under the scheme, Excelsior shareholders will receive 1 new Spitfire share for every 2.208 Excelsior shares they hold.

The completion of the Spitfire/Excelsior merger comes as M&A activity continues to accelerate in the WA gold sector.

Earlier this month, mid-tier producer Ramelius Resources (ASX: RMS) made a hostile bid for Explaurum (ASX: EXU) – a move which Patersons Securities resource analyst Xavier Braud says highlights the upside in other junior WA explorers.

Braud said Ramelius’ offer was equal to an enterprise value of $75 per resource ounce based on Explaurum’s resource inventory of 675,000oz – a valuation metric that will be closely watched by other emerging players like Spitfire and Excelsior.

Excelsior chief Rowan Johnston said the merger with Spitfire would set the combined company up to become a major new force in Kalgoorlie Goldfields.

“Our shareholders have overwhelmingly voted in favour of this transaction, which puts us in the box-seat to develop our adjoining gold projects,” he said.

“Once the merger is complete early next month, we can get on with job of developing this exciting new Australian gold project – which could see us become a significant new gold producer in the next 12-18 months.”

A Pre-Feasibility Study on the combined gold projects is due to be finalised next quarter, paving the way for a Definitive Feasibility Study next year.

Spitfire, led by well-known mining executives and Pilbara Minerals (ASX: PLS) founders Neil Biddle and John Young, has already been active in the gold M&A space, completing a merger with Aphrodite Gold last year and the earlier acquisition of unlisted company Admiral Gold.

Samples from Spitfire's Aphrodite Gold Project — Samples from Spitfire’s Aphrodite Gold Project

“There’s no doubt that Spitfire has been an early mover in the new wave of gold consolidation we’re seeing in the sector now, completing two significant M&A deals last year,” Johnston said.

“I think we’re now well placed to reap the rewards of this early work.”

According to analysts, the planned merger of Spitfire and Excelsior will create a company with an extensive resource base capable of underpinning a 100,000 ounce-a-year operation.

Independent Investment Research analyst Mark Gordon says the deal will deliver a host of benefits, effectively combining projects located just 20km apart near Kalgoorlie, meaning the combined group will have sufficient resources to justify a stand-alone operation with easy access to infrastructure in a Tier-One mining location.

“The synergies inherent in the proposed merger of Spitfire and Excelsior should result in the merged total being more than the sum of the parts,” he says in a recent research report.

“A successful completion will see the combination of the current gold resources, which should form a critical mass to justify the merged entity to look towards development options for a combined project.”

The two key gold projects, Spitfire’s Aphrodite (1.26Moz) and the Excelsior’s Kalgoorlie North Gold Project (825,000oz) “form a natural fit for a combined development and provide operational and development synergies,” Gordon says.

Also in the mix is Spitfire’s Mulwarrie Gold Project, located 65km from Aphrodite.

“In addition, drilling at Mulwarrie has intersected grades of up to 43gpt, again highlighting the potential for a high-grade discovery,” Gordon said.

This special report is brought to you by Spitfire Resources.

This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice.

If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.