PERTH (miningweekly.com) – Juniors Echo Resources and Metaliko Resources have confirmed speculation that the two companies would merge, announcing on Thursday the creation of a substantial gold business with a mineral resource of more than 800 000 oz.

Under the terms of the agreement, Echo will acquire all of the issued shares of Metaliko by way of an off-market takeover offer, offering Metaliko shareholders one of its own shares for every two-and-a-half shares held.

Based on Echo’s closing price of 22c a share on September 27, the offer valued Metaliko at about A$38.9-million, or its shares at 8.8c each.

The offer price represented a 24% premium to Metaliko’s last closing price on the ASX, and a 38% premium to the company’s 20-day volume-weighted average price.

Metaliko’s directors have unanimously recommended that shareholders accept the offer, agreeing to accept Echo’s offer for their combined shareholding of some 31.42% of the company’s total issued shares.

In a joint statement, Metaliko and Echo told shareholders that the combined entity would create a strong emerging gold exploration company with potential for near-term production and positive cash flows, with exploration upside in one of the premier Australian gold provinces.

Echo is exploring for gold, copper and nickel deposits in Western Australia and Queensland and currently owns the Julius gold discovery in the Yandal gold province.

Metaliko owns the Yandal gold project, in Western Australia, which includes the two-million-tonne-a-year Bronzewing milling facility, a 280-room village, and project tenements and production infrastructure.

The two companies said on Thursday that the combination would provide the potential for a rapid and modest-cost pathway to production at the Julius gold deposit by suing the Bronzewing processing facility, and could potentially allow the Julius deposit to be brought into production as soon as mid-2017.

Previous scoping work has indicated that the Julius project could generate earnings of some A$47-million through toll treatment, but this could increase if the Bronzewing mill is used.

“The merger will create a company of considerable scale, with early production possible and a landholding with potential to create Australia’s next midtier gold miner,” said Metaliko executive director Michael Ruane.

“Metaliko has a gold resource base of approximately 500 000 oz within tenements adjoining those held by Echo. I am confident that a robust exploration programme on the combined tenements will enhance this considerably.”

Echo CEO Simon Coxhell said that the merger provided an "excellent opportunity" to combine two complementary business to access the enormous untapped potential of the Yandal greenstone belt.

“We are firm believers in the future of the Yandal greenstone belt and Echo has built a dominant land position with a significant resource base. This merger provides access to the Bronzewing plant plus a large prospective tenement package with enormous potential and considerable existing gold resources.”

The merger agreement is subject to a 90% acceptance condition, as well as shareholder approval.

The offer is expected to expire in the fourth quarter of this year.