PERTH (Miningweekly.com) – Gold miners Genesis Minerals and St Barbara have finally announced a merger agreement, months after first flagging discussions to consolidate gold holdings in the Leonora region of Western Australia.

In a joint statement on Monday, Genesis and St Barbara announced the merger under which St Barbara would acquire all of the shares in Genesis through a scheme of arrangement, to form a new company called Hoover House.

Genesis shareholders are to receive 2.0338 new fully paid ordinary shares in St Barbara for each Genesis share held at the scheme record date, representing a nil premium to the 30-day volume weighted average price.

Meanwhile, St Barbara will undertake demerger of its Atlantic, Simberi and other assets, including its shares in various ASX-listed entities, to St Barbara shareholders in conjunction with the scheme, to be held in a company to be known as Phoenician Metals, which will apply for an ASX listing.

St Barbara’s Gwalia underground operation, in Western Australia, will remain in the Hoover House portfolio.

Genesis is to raise A$275-million to fund the merged entity and facilitate the transaction, conditional on the scheme and demerger becoming effective.

Hoover House will have a production target of 300 000 oz/y, compared to St Barbara’s standalone 2023 production guidance of 145 000 oz to 160 000 oz for Leonora with year-to-date actual production of 56 000 oz.

The merger of St Barbara and Genesis is expected to unlock substantial near-term synergies for both sets of shareholders. The resetting of the combined entity’s corporate support model, a write up of Genesis’ depreciable tax cost base, and deferment of capital in relation to the Gwalia mill are expected to result in synergies with a net present value of approximately A$200-million, the two companies said in a statement.

Overall, the merger will either defer or eliminate A$400-million of capital expenditure, reducing near-term execution risk and funding requirements.

Following the scheme, it is expected that Hoover House will retain a 20% shareholding in Phoenician Metals.

The Hoover House board will consist of seven members, comprising four St Barbara directors, including chairperson Tim Netscher and Dan Lougher, as well as two directors from Genesis, including MD Raleigh Finlayson.

“I am confident that this unique transaction will deliver significant value for all shareholders. The merger with our Leonora neighbour, Genesis, to create Hoover House, will accelerate our Leonora Province Plan. Shareholders will reap the benefits of more production at lower cost and lower risk from this prolific mining district,” said Netscher.

“A significant component of the value delivered by the creation of Hoover House is the unique synergies delivered by the resultant combination of assets, such as the ability to sensibly stage the development of the various orebodies and to match one party's ore to the other party's mill capacity.

“In parallel, select assets including Atlantic and Simberi will be de-merged to create Phoenician Metals. This will provide an opportunity for shareholders to realise the long-term value of this well-endowed portfolio in a dedicated vehicle with a high-quality management team. Phoenician Metals will attract stronger investor attention and valuation in a standalone entity, while allowing Hoover House to focus 100% on the Leonora District.”

Finlayson said that the merger was a major step forward in the strategic journey that Genesis embarked on less than 12 months ago, which also included a takeover offer for gold miner Dacian Gold in which Genesis currently holds a 77% interest.

The takeover offer for Dacian is set to close on December 12.

“By combining with St Barbara, we are creating Hoover House, the premium Australian gold company we envisaged, with sustainable, high-quality production.

“Sensible M&A is a key component of our multi-pronged growth strategy, and our team has a strong track record of executing accretive transactions. Consolidation of the world-class Leonora District is a natural fit for Genesis,” said Finlayson.

“The close proximity of the combined company’s core Leonora assets, the ability to unlock substantial synergies and the clear path to a market re-rate makes this the right deal for both Genesis and St Barbara shareholders.”

The Genesis board of directors unanimously recommends that Genesis shareholders vote in favour of the scheme, in the absence of a superior offer and subject to an independent expert declaring the offer to be in the best interest of shareholders.

The transaction is subject to Genesis shareholders approving both the takeover offer as well as the A$275-million capital raise, St Barbara shareholder approval, lender consent, ASX approving the admission of Phoenician Metals on the ASX, and other conditions customary.

Genesis will conduct a conditional placement to raise the A$275-million, issuing 229.2-million shares at a price of A$1.20 each. The offer price represented a 0.4% premium to Genesis’ last closing price and a 2.7% discount to the company’s ten-day volume weighted average share price.

A number of institutional cornerstone investors have entered into subscription agreements to subscribe for the full A$275-million, including Australian Super, which has committed to A$164-million subject to scale back, RCF VII which has committed to A$75-million, and other institutional investors who have in aggregate committed to A$36-million.

Some A$50-million of the funds raised will go towards a re-set of the Gwalia operations, pursuing organic growth opportunities at the project to support a more than 300 000 oz/y output target from the Leonora region.

A further A$20-million will go towards the Tower Hill development, A$90-million to reduce debt, A$50-million for transaction costs and a further A$65-million for working capital for Phoenician Metals.

PHOENICIAN METALS

The demerged Phoenician Metals’ assets will include the Atlantic and Simberi operations, 12.7-million shares in Catalyst Metals, valued at A$15-million, 158.1-million shares in Kin Mining, valued at A$12-million, 41.5-million shares in Peel Mining, valued at A$7-million, and a number of other royalty interests over mining and exploration assets.

Phoenician Metals will be established with a 6.2-million-ounce mineral resource and 3.7-million-ounce ore reserve, with 2023 production target of between 110 000 oz and 130 000 oz. The company will have a strong balance sheet of around A$85-million and will have no debt.

St Barbara on Monday said that its board intends to unanimously recommend the demerger, and each director intends to vote all the St Barbara shares they hold in favour of the demerger, if the demerger is found to be in the best interest of shareholders.

The demerger will be subject to the merger agreement with Genesis, as well as shareholder approval from St Barbara shareholders.

The Phoenician Metals board will comprise three directors from St Barbara, including David Moroney, Dan Lougher, and Stef Loader, with Andrew Strelein as MD and CEO. Lucas Welsh will be CFO.

St Barbara currently has a syndicated debt facility with available credit of C$100-million and A$200-million, of which C$80-million and A$50-million is currently drawn. It is planned that upon implementation of the scheme, Hoover House will repay the C$80-million component of the facility, with the intention for the A$50-million component to be retained by Hoover House.

Separate to the transaction, St Barbara is currently seeking to negotiate with its existing lenders a covenant waiver with respect to one of its existing covenants which is expected to be in breach when measured as at the end of December 2022. Through preliminary discussions, St Barbara expects lender support for the transaction and covenant waiver.

Meanwhile, St Barbara on Monday told shareholders that at its Atlantic operations, the company has taken the decision to pause the permitting process for the Beaver Dam operation, to provide additional time for further consultation with First Nation Groups, the Department of Fisheries and Ocean, and other affected community groups.

This meant that first ore from Beaver Dam will not be possible before Touquoy is anticipated to have finished processing stockpile material in December 2024. As a result the Touquoy plant will enter a period of care and maintenance at that time.

St Barbara said that business continuity for milling operations at Touquoy had been a priority to the company, and hence the emphasis on permitting Beaver Dam to provide ore supply to the Touquoy mill. The opportunity will be taken to press ahead with the Fifteen Mile Stream permitting and review the opportunity to repurpose the Touquoy mill for Fifteen Mile Stream when stockpile processing concludes. St Barbara is now targeting commencement of construction at Fifteen Mile Stream in 2026.

The pause of Beaver Dam permitting and the consequent break in business continuity is expected to result in an impairment in the carrying value of the Atlantic assets in the December half-year results.

Furthermore, the strategic review at Simberi has identified opportunities within the existing ore reserves and conversion of mineral resources and the targeting of new ore zones. This has provided St Barbara with confidence that the oxide mine life can be extended through 2025.

The company said that it has received expressions of interest in relation to Simberi, but none have been on commercial terms that reflect the value of the operation.