PERTH (miningweekly.com) – Gold miner St Barbara and fellow-listed Genesis Minerals on Monday revealed a A$600-million alternative proposal that would see Genesis acquire St Barbara’s Leonora assets, in Western Australia.

The two companies earlier this month flagged the necessity for an alternative proposal to the Hoover House merger agreement previously agreed upon, after St Barbara was faced with financial and operational performance issues, and the "ongoing evolution" of its mine plan for the Gwalia operation, in Western Australia.

Under the previous Hoover House agreement, Genesis shareholders were to receive 2.0338 new fully paid ordinary shares in St Barbara for each Genesis share held, with Genesis also having to raise A$275-million to fund the merged entity and facilitate the transaction, conditional on the scheme and demerger becoming effective.

Under the Hoover House agreement, St Barbara would also have undertaken 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 would apply for an ASX listing.

In lieu of the merger agreement, the two companies have now settled on an asset purchase agreement which will give Genesis control of St Barbara’s Leonora assets for an up-front cash payment of A$370-million, the issue of 147.8-million shares in Genesis, valued at A$170-million, and an additional 52.2-million shares in Genesis, valued at A$60-million, contingent on Tower Hill achieving first production.

To fund the asset purchase, Genesis would raise A$470-million in capital, with the company saying on Monday that it had received firm commitments for this placement, which had been priced at A$1.15 a share. The placement would be undertaken in two tranches to professional and sophisticated investors, with the second tranche subject to shareholder approval.

The first tranche of the placement will consist of 60.5-million shares to raise an initial A$70-million, with the second tranche to consist of 348.2-million shares to raise the remaining A$400-million.

“The acquisition of St Barbara’s Leonora assets will position Genesis as a gold industry leader with a dominant position in Western Australia’s world-class Leonora District.

“Investors are demanding sensible regional consolidation, and this deal hits the spot, targeting long-life production growth to 300 000 oz/y exclusively from Leonora,” said Genesis MD Raleigh Finlayson on Monday.

“We look forward to integrating the assets and unlocking the significant synergies available in Leonora. For example, Genesis’ nearby Ulysses mine will deliver unique value at Gwalia, providing Gwalia with a new lease of life by enabling a focused ‘margin over ounces’ business plan.

“Shareholders will ultimately reap the long-term benefits of more production at lower cost and lower risk from this prolific mining district.”

St Barbara told shareholders on Monday that the asset sales agreement was in the best interest of shareholders, given the underperformance of the Gwalia asset which had resulted in a significantly lower cash position against forecast, and the lower cash flow from the Atlantic operations in the near term, given the non-receipt of approval for in-pit tailings disposal at Touquoy.

Given the increase in funding requirements for St Barbara, and the expected breach of the company’s existing banking covenants, St Barbara is likely to have paid down a "significant portion" of its A$160-million senior debt facilities with the enactment of the Hoover House agreement.

Instead, the revised agreement will result in the gold miner holding a near 19.5% interest in Genesis, and will enable St Barbara to extinguish all of its senior debt and lease liabilities, while holding a pro-forma cash balance of A$197-million.

“The board believes the transaction value from the sale of the Leonora assets represents fair value for our shareholders, who will now own a well-capitalised, debt-free business, with a portfolio that has significant potential, and the people and resources in place to realise its true potential,” said chairperson Tim Netscher.

“Simberi and Atlantic have combined 5.9-million ounces in mineral resources and 3.5-million ounces in ore reserves and provide a solid foundation for the business. The company has a clear strategy in place to maximise the value of those assets going forward.

“While St Barbara shareholders will receive a reduced percentage of the combined Leonora assets in what was previously to be called Hoover House relative to the scheme, this value is largely offset by the A$110-million of additional cash, and 100% shareholding in the residual St Barbara business.

“The exposure of St Barbara shareholders of up to near 19.5% of Genesis post acquisition will also allow St Barbara’s shareholders to directly benefit from the combination of St Barbara’s and Genesis’ assets in the Leonora region.

“I am very supportive of this transaction, and I would like to thank the St Barbara board and senior management team who have worked tirelessly over many months to reach agreement on this transaction,” Netscher said.

The transaction is subject to a number of conditions, including shareholder approval on both sides, regulatory approvals and consent from St Barbara’s lenders.

Post the transaction, St Barbara will hold its Atlantic and Simberi operations, in Canada and Papua New Guinea respectively, the Pinjin exploration joint venture in Western Australia, and selected exploration tenements outside of Western Australia.

The company will also retain its shareholding in Catalyst Metals, Kin Mining and Peel Mining, as well as hold a number of other royalty interests over mining and exploration assets.