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Australian gold miner Northern Star Resources said on Monday it will buy De Grey Mining in an all-share deal valuing the smaller miner at A$5 billion ($3.3 billion) as high gold prices spur consolidation in the sector.
For Northern Star, the deal offers low-cost, medium- to longer-term growth through access to De Grey’s Hemi gold development project in Western Australia, which will ramp up toward the end of the decade.
It comes after a rise in gold prices, and Australian-dollar gold prices in particular, which hit a record above A$4,240 a troy ounce in late October, and have rallied by about a third in the past year.
“Obviously gold is expensive, but it’s a script deal so we are happy with that,” said Baden Moore of CLSA.
Northern Star shares sank as much as 5% however, while shares in De Grey rallied as much as 28% before trading at A$1.93.
Under the deal, De Grey shareholders will get 0.119 new Northern Star shares for each share held, implying an offer price of A$2.08 per share.
The offer price represents a 36.8% premium on De Grey’s Friday share close of A$1.52.
“De Grey’s Hemi development project will deliver a low-cost, long-life and large-scale gold mine in the Tier-1 jurisdiction of Western Australia, enhancing the quality of Northern Star’s asset portfolio to generate cash earnings,” Stuart Tonkin, Northern Star’s CEO, said.
Hemi has forecast average gold production of 553,000 ounces per annum over the first five years.
Northern Star already owns and operates three production centres, comprising its Kalgoorlie and Yandal operations in Western Australia and Pogo in Alaska.
Upon completion of the deal, Northern Star shareholders will own about 80.1% of the merged company, while De Grey shareholders will own the rest.
The deal presents an attractive opportunity for De Grey shareholders in terms of upfront premium along with retaining ongoing exposure to Hemi and gaining exposure to Northern Star’s portfolio, said Glenn Jardine, De Grey’s managing director.
De Grey’s directors have unanimously recommended shareholders vote in favour of the deal, which is expected to close by late April or early May, the two companies said.
Shares in Gold Road Resources, De Grey’s biggest shareholder with some 17% of the company according to LSEG, rose by 10%.
($1 = 1.5356 Australian dollars)
(By Melanie Burton and Aaditya Govind Rao; Editing by Lisa Shumaker and Stephen Coates)
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