Gold miner Genesis Minerals
(ASX:GMD) is having a second go at keeping its Laverton concentration plans alive by recasting its deal with key target St Barbara.
The original deal was called Hoover House and involved the backward injection of Genesis into St Barbara via a takeover of the former by the latter.
That has been replaced by a straight asset buy – St Barbara’s gold assets in the Laverton area of WA with its PNG and Canadian assets left out on a limb inside St Barbara which last year struggled with both sets.
The Kerry Stokes-backed Genesis told the ASX on Monday that it had received firm commitments to raise $A470 million (before costs) at a price of $A1.15 per share via a two-tranche placement of fully paid ordinary shares to professional and sophisticated investors of $50 million and a second tranche of the placement which is conditional on shareholder approval for the latest deal.
“The Asset Purchase is a strategic acquisition, logically consolidating St Barbara’s Leonora assets and Genesis’ neighbouring assets including the new Ulysses mine. The Asset Purchase is expected to unlock significant synergies, including the optimum pairing of deposits and regional processing infrastructure,” Genesis said in Monday’s statement.
“Following completion of the Asset Purchase and Placement, Genesis (name to remain the same) intends to grow sustainable, high-quality production exclusively from the Leonora District, funded by the proceeds from the Placement and operating cash flows.
“Under the new transaction, Genesis will emerge with an improved balance sheet (relative to the scheme of arrangement), with pro-forma cash of A$175m (excluding approximately A$40m in transaction costs) and no debt.
“The Transaction is unanimously recommended by the Genesis Board, subject to no superior proposal emerging.”
Genesis CEO Raleigh Finlayson said:
“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 ounces per annum exclusively from Leonora.
“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.”
He said shareholders will ultimately reap the long-term benefits of more production at lower cost and lower risk from the deal.
Genesis shares rose 10% to $1.21 yesterday.
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For a company whose mining problems at the Gwalia mine (and debt management) sank the original Hoover House deal, St Barbara was curiously upbeat on Monday even though it is stuck with assets that Genesis very pointedly excluded from the deal.
It is quite clear from a presentation and the comments from St Barbara that the company’s future had become doubtful under the December deal.
St Barbara just didn’t have enough cash on hand or cash flows (especially with the mining problems at Gwalia) to continue if all the demands for payment had happened at the same time – which looks to have been increasingly possible.
In the presentation, St Barbara said the total consideration of $600 million comprising $370 million upfront cash, $170 million Genesis shares and a further $60 million Genesis shares contingent upon Tower Hill reaching first production – “compares favourably to St Barbara enterprise value of $639 million”
It said the deal results in its shareholders “collectively having exposure of up to ~19.5% of Genesis post acquisition (15.2% excluding contingent consideration).” It was around 38% under the December deal.
St Barbara said the deal will allow it to extinguish all senior debt and lease liabilities, with a strong pro-forma balance sheet with approximately $197 million in cash and no debt
“St Barbara retains 5.9 million ounces of gold in Mineral Resources and 3.5 million ounces in Ore Reserves at Atlantic and Simberi FY23E production guidance of 110-130,000 oz, ensuring relevance in the ASX gold sector”
St Barbara said it would show “Absolute focus on delivering full value from Atlantic, Simberi assets, and the full investment portfolio.”
All the bullishness for the PNG and Canadian gold assets seems a little odd seeing they were to be spun off into a separate company under the first plan (to be called Phoenician Metals) – in other words, the Genesis- St Barbara managements didn’t want to hang onto them under the old deal.
The Simberi assets in PNG were placed under review last year by St Barbara management, a clear hint they were not wanted long term, while the Atlantic gold assets on the east Canadian coast were struggling last year.
In Monday’s presentation, it is clear the new deal allows St Barbara management to hopefully push the slimmer company on a new course – under the previous arrangement, any future looked problematic.
St Barbara said in the presentation its board and that of Genesis had agreed to terminate the Hoover House deal because of:
“Gwalia’s material underperformance; potential increase in quantum of Environmental Performance Bonds at Atlantic (in eastern Canada), which would likely need to be cash backed; non-receipt of approval for in-pit tailings disposal at Touquoy (in eastern Canada), as announced on 2 March 2023.”
“Given the increase in funding requirements (driven by issues outlined above), and expected breach of St Barbara’s existing covenants (interest cover ratio) at 30 June 2023, it is likely that St Barbara would have been required to pay down a significant portion of its senior debt facilities.
“The revised transaction maximises value and overall deal certainty for St Barbara shareholders with the removal of the net debt condition precedent and a reduction in complexity and timeline through the removal of the Scheme Process.”
That’s an interesting bit of self-examination on the part of St Barbara on what was a near terminal time for the miner.
The shares ended Monday’s session down 5.4% at 61 cents.
