Westgold Resources and Karora Resources set to merge in $2.2b deal and create 400koz per annum gold producer

Karora Resources has moved on quickly after deal discussions broke down with Ramelius Resources, finding another WA mid-tier suitor in Westgold Resources and reaching a merger agreement valued at $2.2 billion.

Westgold and Canadian-listed Karora on Monday announced they will merge to unlock $490 million in “potential synergies” and a WA gold portfolio pumping out at least 400,000 ounces of gold a year.

If the deal gets the blessing of shareholders in late July it will mean Westgold is buying back the Higginsville gold project it sold in 2019 for about $50m.

The Wayne Bramwell-led Westgold will snare 50.1 per cent of the new entity — which it termed “Enlarged Westgold” — and Karora investors will receive 2.524 Westgold shares for each Karora share they hold.

This represents a 10.1 per cent premium for Karora’s shares, which trade on the Toronto Stock Exchange and Westgold intends to keep that listing on top of the ASX presence.

Westgold’s operations are centred in the State’s Mid West, while Karora’s are situated in the Goldfields region.

Despite this, the duo believe significant cost synergies are to be had on the procurement and supply chain front, on top of the general elimination of duplicate corporate expenses.

The board of the new Westgold will be fattened up from six to nine, with Mr Bramwell remaining the chief executive and Westgold chair Cheryl Edwardes retaining her role.

It will be the sixth-largest Australian-based gold miner by value, just behind Ramelius.

Mr Bramwell said Karora’s Beta Hunt gold project was “the prize”.

“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,” he said.

“This merger brings Beta Hunt 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.”

Karora owns two mills — Lakewood and Higginsville — which is fed ore from its Beta Hunt and Higginsville gold mines.

All of these assets are located south of Kalgoorlie, predominately in the Kambalda region.

Westgold has three mills and two mines, all located in the Mid West stretching from Cue to 150km north of Meekatharra.

Karora’s portfolio also includes a 22.1 per cent stake in lithium junior Kali Metals.

Early last month, Ramelius confirmed it was in talks with Karora regarding a transaction but that disintegrated by March 28.

Ramelius has a market capitalisation of $2.2b, meaning a deal would have likely been structured like a takeover rather than a more equal merger.

Shares in Westgold had a choppy start to Monday’s trade, jumping 3.5 per cent before dropping sharply to trade down 0.9 per cent at $2.26 each by 9.05am.

If the deal goes through it could be the second major WA gold consolidation of the year, after Silver Lake Resources and Red 5 made a pact to combine in February, which is set to go to a vote in June.

Red 5 shareholders will own 51.7 per cent of the new entity, currently valued at around $2.6b, and Silver Lake — which has a 11.9 per cent stake in Red 5 — the remainder.