Karora Resources Inc. (TSX: KRR) (OTCQX: KRRGF) (“Karora”) and Westgold Resources Limited (ASX: WGX) (OTCQX: WGXRF) (“Westgold”) have agreed to combine in a merger pursuant to which Westgold will acquire 100% of the issued and outstanding common shares of Karora (“Karora Shares”) by way of a statutory plan of arrangement under the Canada Business Corporations Act (“CBCA”) (“Transaction”).
- Karora shareholders will receive 2.5241 Westgold fully paid ordinary shares (“Westgold Shares“), A$0.68 (C$0.611) in cash and 0.30 of a share in a new company to be spun-out from Karora (“SpinCo“) for each Karora Share held at the closing of the Transaction (“Offer Consideration“). The Offer Consideration represents approximately A$6.60 (C$5.902) per Karora Share based on Westgold’s closing share price on the ASX of A$2.28 on 5 April 2024.
- SpinCo’s assets will comprise Karora’s existing 22.1% interest in Kali Metals Limited (ASX:KM1) (“Kali“), a 1% lithium royalty on certain mining interests held by Kali, the right to receive a deferred consideration payment due to Karora relating to the on-sale of the Dumont asset and A$6 million (C$5 million2) in cash. SpinCo will be owned 100% by existing Karora shareholders.
- The Offer Consideration represents a 10.1% premium to Karora’s closing share price on the Toronto Stock Exchange (“TSX“) of A$5.995 (C$5.3602) on 5 April 2024 and a 25.3% premium to Karora’s and Westgold’s 20-day volume weighed average price (“VWAP“) on the TSX of A$5.552 (C$4.9642) and on the ASX of A$2.421 (C$2.1642) up to and including 5 April 2024.
- Upon completion of the Transaction, Westgold shareholders will own approximately 50.1% of the combined company (Westgold after completion of the Transaction referred to as “Enlarged Westgold“) and former Karora shareholders will own approximately 49.9%.
- Enlarged Westgold will have a market capitalization of approximately A$2.2 billion2 (C$1.9 billion2).
- Enlarged Westgold will have a portfolio of assets from an exclusively Western Australian asset base, a clear pipeline of growth projects and high-quality exploration targets.
- The Enlarged Westgold intends to apply for quotation of its Westgold Shares on the TSX on completion of the Transaction.
- The Transaction has been unanimously approved by the boards of directors of Westgold and Karora, and Karora’s board of directors will recommend that the shareholders vote in favour of the Transaction.
- Directors and members of senior management of Karora holding approximately 1.2% of Karora Shares have entered into voting support agreements pursuant to vote their Karora Shares in favour of the Transaction at the meeting of shareholders to be called by Karora to approve the Transaction (“VSAs“). In addition, key institutional shareholders with a combined shareholding of approximately 9% including Eric Sprott have signed VSAs or otherwise have indicated they would support the Transaction.
- The Transaction represents a transformational step change in growth for both Westgold and Karora shareholders:
- Creates a globally investable, mid-tier gold producer operating exclusively in Western Australia with a highly complementary combination of mining and processing assets, people and balance sheet;
- Top 5 largest, ASX listed Australian gold producer based on the pro forma market capitalization;
- One of the largest unhedged Australian gold producers on completion of the Transaction providing investors with full exposure to the gold price3;
- Combined pipeline of advanced organic growth options and exploration targets across Karora’s Beta Hunt and Higginsville properties and Westgold’s Murchison and Bryah properties;
- Estimated operating synergies4 of A$209 million (C$187 million2) and estimated corporate savings5 of A$281 million (C$251 million2);
- Robust balance sheet with financial resources of circa A$160 million (C$143 million2) in cash and liquidity through Westgold’s existing corporate revolver facility (subject to requisite consents) and following full repayment of Karora’s existing A$44 million (C$39 million2) revolving facility to support an accelerated resource development program at the Beta Hunt Fletcher Zone and Bluebird-South Junction;
- Enhanced capital markets profile with increased scale, trading liquidity and quality to be attractive to both gold and generalist investors across ASX, TSX and OTCQX;
- Significant re-rating potential via increased scale and increased index weighting, such as the GDX and GDXJ indices; and
- Combined board of directors comprising experienced mining professionals with a proven track record of maximizing value for shareholders.
“The prize here is Beta Hunt’s gold potential. Rarely do you find a gold asset of the quality and potential of Beta Hunt hiding in a nickel belt and drilling is expected to further unlock value at this mine.
This merger brings the large Beta Hunt mine together with Big Bell, the emerging Bluebird and the iconic Great Fingall mine under one Australian management team. These assets combined create the foundations of a new Australian gold mining powerhouse that is focused on free cash generation, is internationally relevant and investable and can stand head and shoulders alongside the biggest names in the Australian gold sector.
The Westgold and Karora teams have independently been structuring our businesses for growth for several years and now is the time to bring these two businesses together. Overprint an experienced and expanded team with similar corporate journeys, strong safety and cultural alignment and a shared commitment to developing its people and we have a new business dominant across two historic, yet under-explored goldfields.
The expanded business will have several large mines, be well funded, fully leveraged to the gold price and have optionality over an enviable selection of growth opportunities. Importantly, the business will have expanded human and physical resources to extend mine lives and production scale rapidly.
Westgold welcomes the Karora team, shareholders and stakeholders to the Westgold family and looks forward to creating value across two of Western Australia’s most iconic goldfields.”
