Sprott backs $1.1 billion Karora, Westgold merger deal
Karora Resources Inc. [KRR-TSX, KRRGF-OTCQX] has announced details of a merger transaction with Westgold Resources Ltd. [WGX-ASX, WGXRF-OTCQX] that aims to create a mid-tier gold producer operating exclusively in Western Australia.
The merger will combine Karora’s its Beta Hunt and Higginsville operations with Westgold’s Murchison and Bryah properties, resulting in four production centres. Westgold is producing between 220,000 and 230,000 ounces of gold annually.
Karora is focused on increasing gold production to a targeted range of 170,000 to 185,000 ounces in 2024 at its integrated Benta Hunt Gold Mine and Higginsville Gold Operations, approximately 60 kilometres from Kalgoorlie, along the prolific Norseman-Wiluna Greenstone Belt.
Key institutional shareholders, with a combined shareholding of approximately 9.0%, (including Toronto-based financier Eric Sprott), have signed voting support agreements or otherwise indicated that they will support the deal.
Karora shares eased lower on the news, falling 0.93% or $0.05 to $5.31 on volume of 352,270. The shares trade in a 52-week range of $5.62 and $3.60.
Under the agreement Westgold will acquire 100% of the issued and outstanding shares of Korora by way of a statutory plan of arrangement. Karora shareholders will receive 2.5241 Westgold ordinary shares A$0.68 (C$0.61) in cash and 0.30 of a share in a new company to be spun-out from Karora for each Karora share held. The SpinCo assets will consist of Karora’s existing 22.1% interest in Kali Metals Ltd. [KMI-ASX], a 1.0% lithium royalty on certain mining interests held by Kali, the right to receive a deferred payment due to Karora relating to the on-sale of the Dumont asset and A$6.0 million in cash. SpinCo will be 100%-owned by Karora shareholders.
The total offer consideration represents approximately A$6.60 (C$5.90) per Karora share or $1.1 billion based on Westgold’s closing share price on the ASX on April 5, 2024. It also represents a 10.1% premium to Karora’s closing price ($5.36) on the TSX on April 5, 2024.
Upon completion of the transaction, Westgold shareholders will own approximately 50.1% of the combined company (referred to the enlarged Westgold), while Aurora shareholders will hold approximately 49.9%. The enlarged Westgold intends to apply to have its shares listed on the TSX.
“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,’’ said Westgold Managing Director Wayne Bramwell.
News of the merger comes just days after Karora said it met its first quarter 2024 gold production targets in Australia in spite of wet weather and a regional interruption of the power grid.
The company reported first quarter consolidated gold production of 36,147 ounces and sales of 40,343 ounces from its Beta Hunt and Higginsville operations.