TORONTO, April 7,
2024 /CNW/ - 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").
Transaction Highlights:
- 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.
Westgold Managing Director and CEO
Wayne Bramwell commented:
"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."
Karora Chairman and CEO,
Paul Huet commented:
"For the last two years, Karora has watched Mr. Bramwell and
the team consistently unlock material value for shareholders at
Westgold. One of the more unique aspects of this transaction is a
very strong cultural fit between both companies which will serve
shareholders of the enlarged company well for a very long time. The
merger is estimated to unlock approximately A$490 million of operational, G&A and capex
synergies while shareholders will become proud owners of the
largest unhedged gold producer in Australia at completion of the Transaction –
certainly a compelling opportunity in the current gold price
environment.
The team at Karora have worked diligently to execute on our
strategy to build the next +200 kozpa Australian gold
producer6. We have delivered value to
shareholders through a disciplined growth approach by investing in
our cornerstone asset in Beta Hunt, which will be fully ramped up
to 2 Mtpa7 later this year, our pipeline of
projects at Higginsville and through strategic asset acquisitions
such as the Lakewood Mill and Spargos Gold Mine to establish the
next emerging junior gold producer in the Western Australia gold fields.
With the combination of Westgold and Karora, we are taking
the next step by combining two highly complementary, free cash flow
generating asset bases in one of the world's finest mining
jurisdictions to create a premier Western Australian mid-tier gold
producer. Karora shareholders will benefit from having very
meaningful ownership in a larger, more diversified gold producer
with a highly experienced management team located entirely in
Western Australia.
The prospects for the combined company are tremendous, with
over 3,200km2 of combined exploration tenements
in Australia's most prospective
gold mining regions coupled with a significantly enhanced balance
sheet poised and ready to deploy into a highly compelling combined
growth and exploration strategy. The combination provides Karora
shareholders with significant exposure to one of the largest
Australian gold producers with significant potential for an
eventual share price re-rate as the operational synergies and
enhanced scale of the combined portfolio are
realized."
Transaction Details:
Westgold and Karora have entered into a definitive arrangement
agreement dated 8 April 2024 (the
"Agreement"), pursuant to which Westgold will acquire all of
the Karora Shares by way of a statutory plan of arrangement under
the CBCA. The Transaction will create a diversified Western
Australian focused ASX, TSX and OTCQX-listed gold company with a
robust portfolio of exploration, development and production assets.
Enlarged Westgold will have a strong pipeline of growth
opportunities.
Under the terms of the Agreement, each Karora Share outstanding
at the effective time of the Arrangement will be exchanged for the
Offer Consideration comprising of:
- 2.524 new Westgold Shares, representing A$5.755 (C$5.1452) per Karora Share held based
Westgold's last closing share price on the ASX of A$2.28 on 5 April
2024;
- A$0.680 (C$0.6082) in cash; and
- 0.30 of a SpinCo share, with an implied value of
A$0.164 (C$0.1472).
The Offer Consideration represents an approximately A$6.60 (C$5.902) per Karora Share and a fully
diluted equity value of A$1,233
million (C$1,103
million2) based on Westgold's closing share price
on the ASX of A$2.28 on 5 April 2024. The Offer Consideration represents
a 10.1% premium to Karora's closing share price on the TSX of
A$5.995 (C$5.3602) of 5
April 2024 and a 25.3% premium to Karora's and Westgold's
20-day 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, existing Westgold and Karora
shareholders will own approximately 50.1% and 49.9% of Enlarged
Westgold, respectively.
Westgold intends to make an application for a secondary listing
on the TSX as part of the Transaction.
The Enlarged Westgold board will be comprised of the current
directors of Westgold and two (2) directors from Karora. The Hon.
Cheryl Edwardes AM will be the Chair
of Enlarged Westgold and Wayne
Bramwell will be Managing Director and Chief Executive
Officer. Leigh Junk, currently
Managing Director, Australia and
Shirley In't Veld, a director of Karora, will be included on
the Enlarged Westgold board. Paul
Huet, Chairman & CEO of Karora, will continue with
Enlarged Westgold in a special advisory role for six (6) months
post-completion of the Transaction.
In connection with closing of the Transaction, Karora will
spin-out certain assets to former Karora shareholders, being its
shareholding in Kali, a 1% lithium royalty on certain mining
interests held by Kali, the right to receive future payments
related to the sale of the Dumont asset and cash of A$6 million (C$5
million2) to a newly formed SpinCo. Under the
Arrangement, Karora shareholders will receive 0.30 of a SpinCo
share for each Karora Share held.
Strategic Rationale &
Highlights
1. Creation of a leading mid-tier gold
producer
- Top 5 Australian gold producer with a pro forma
market capitalization of A$2.2
billion (C$1.9
billion2).8
- Positioned as one of the largest unhedged Australian gold
producer providing investors with full exposure to gold prices
following Transaction completion.9
- Flexibility and optionality from a combined total of five
(5) mills and 6.9Mtpa of processing capacity in Western Australia.
- Significant exploration upside through highly prospective
~3,200km2 land package across two of Western Australia's most prolific
goldfields.
- Best-in-class team with extensive resources and complementary
underground mining and exploration expertise.
- Tremendous platform for future organic growth
and optionality over nickel co-production at Beta Hunt.
2. Diversified production in Tier 1
jurisdiction
- Diversification across four (4) production centres in
Western Australia.
- Leveraging Westgold's established management team that has
significant experience in Western
Australia.
- Westgold's operating hub model is well-suited to optimizing
value of Karora's two (2) strategically located mills.
3. Exciting organic growth pipeline
- Significant near-mine and regional-scale exploration
opportunities across Karora's assets provides exciting
potential to realize major resource growth at Beta Hunt /
Higginsville.
- Creates a strong organic growth pipeline when combined
with Westgold's highly prospective exploration ground in the
Murchison region.
- Option for growing nickel by-product production
from Karora's Beta Hunt asset.
4. Material synergies driving substantial value
creation
- The merger delivers key strategic synergies including:
- Increased mining and processing facilities offer operating
flexibility and optionality;
- Ability to leverage and complement Westgold's sizable
mining and drilling fleet with an estimated replacement value of
approximately A$200
million10 (C$179
million2) with Karora's newly purchased
equipment;
- Combined in-house expertise enables rapid development of new
projects (eg. Spargos); and
- Increased ability to attract and retain talent as a larger and
more significant Western Australian employer.
- Estimated A$490 million
(C$438 million2) in total
synergies available via the business combination:
- Estimated A$281 million
(C$251 million2) of
identified potential cost benefits through elimination of duplicate
corporate, operational and administrative functions.
11
- Estimated A$209 million
(C$187 million2) in
identified potential operational savings in procurement and supply
chain through leveraging of increased scale. 12
5. Financial resources to execute
- Enlarged Westgold will have financial resources of circa
A$160 million (C$143 million2) including Westgold's
existing corporate revolving facility (subject to requisite
consents) and following the repayment of Karora's existing
A$44 million (C$39 million2) revolving facility,
combined with an outstanding forecast free cash flow profile.
- Strong financial platform to continue investing in organic
growth opportunities.
- Westgold's inaugural FY24 dividend policy will be enhanced by
the increased production and cash flow generation from Karora's
assets.
6. Enhanced capital market profile
- Enhanced profile of Enlarged Westgold to elevate the
company's capital markets' presence and value proposition to a
wider range of global investors.
- Increased scale and diversity to enhance potential demand from
index funds tracking the GDX and GDXJ, amongst others.
Transaction and the Plan of
Arrangement
The Transaction will be effected by way of a court-approved plan
of arrangement under the CBCA, requiring the approval of 66⅔ % of
the votes cast by Karora shareholders at the annual and special
meeting of shareholders of Karora ("Shareholder Meeting"),
and if required under Canadian law, a simple majority of the votes
cast by Karora shareholders excluding for this purpose the votes
held by any person required under Multilateral Instrument 61-101.
Karora expects to call a Shareholder Meeting to be held in
July 2024 to seek approval for the
Transaction. Closing of the Transaction is currently expected to
occur in late July 2024.
In addition to shareholder and court approvals, the Transaction
is subject to applicable regulatory approvals, including those of
FIRB, TSX and ASX, and the satisfaction of certain other closing
conditions customary for a transaction of this nature, including,
among others receipt of key third party consents, no material
breaches of the representations, warranties and covenants of the
parties, no material adverse effects being suffered by the parties
and no more than 5% of Karora shareholders having exercised dissent
rights provided for under the CBCA.
The Agreement also includes customary reciprocal deal
protections, including fiduciary-out provisions, non-solicitation
covenants, and a right to match any superior proposals. A mutual
reciprocal break fee of A$45 million
(C$40 million2) is payable
in certain circumstances and a reciprocal expense reimbursement fee
of A$2.2 million (C$2 million2).
The Agreement may be terminated in certain circumstances
including (but not limited to) by either party if the Transaction
is not approved by shareholders or if certain third party consents
and approvals are not obtained, if the Transaction is not completed
by 30 September 2024 (unless extended
by the parties), if a party breaches its representations and
warranties or fails to perform any covenants or a there has
occurred a material adverse effect to the other party that is not
capable of being cured by 30 September
2024, or if either party enters into a superior
proposal.
The directors, members of senior management of Karora [and
certain shareholders] holding approximately [•]% of the issued and
outstanding Karora Shares have entered into VSAs pursuant to
which they agreed to vote their Karora Shares in favour of the
Transaction at the Shareholder Meeting.
Under the Agreement, all incentive securities of Karora shall be
conditionally accelerated and redeemed or exercised immediately
prior to closing of the Arrangement so that such holders may
participate in the Transaction as Karora shareholders.
In connection with closing of the Transaction, Karora will
spin-out certain assets to Karora shareholders, being its
shareholding in Kali, a 1% lithium royalty on certain mining
interests held by Kali, the right to receive future payments
related to the sale of the Dumont asset and cash of A$6 million (C$5
million2) to a newly formed SpinCo. Under the
Arrangement, Karora shareholders will receive 0.30 of a SpinCo
share for each Karora Share held.
Full details of the Transaction will be included in the meeting
materials which are expected to be mailed to Karora shareholders in
June 2024. The Agreement will be
filed on SEDAR+ under Karora's profile.
Boards of Directors'
Recommendations
The Transaction has been unanimously approved by the boards of
directors of Westgold and Karora, and Karora's board of directors
unanimously recommends that Karora shareholders vote in favour of
the Transaction. The board of directors of Karora has received
opinions from Cormark Securities Inc. and Haywood Securities Inc.
and the special committee has received an opinion from Desjardins
Capital Markets and Cormark Securities Inc. that based upon and
subject to the assumptions, limitations, and qualifications stated,
the Offered Consideration to be received by Karora shareholders
pursuant to the Transaction is fair, from a financial perspective,
to Karora shareholders.
Advisors
Westgold has engaged Argonaut PCF as financial advisor, Thomson
Geer as Australian legal advisor and Stikeman Elliott LLP as
Canadian legal advisor in relation to the Transaction.
Karora has engaged CIBC World Markets Inc., Desjardins Capital
Markets and Cormark Securities Inc. as co-advisors, HopgoodGanim as
Australian legal advisor and Bennett Jones LLP as Canadian legal
advisor to the Transaction.
Conference call /
Presentation
Westgold and Karora will host a joint investor call at
9:00am AWST on 8 April 2024 / 9:00pm
EDT on 7 April 2024 . It
is recommended that you log on at least five minutes before the
scheduled commencement time.
To participate please use the following link:
https://attendee.gotowebinar.com/register/8456233316831746139
About Westgold
Westgold Resources Limited (ASX: WGX, OTCQX: WGXRF) is an
innovative Western Australian gold miner producing circa 220-230koz
per year.13 With more than
1,300km2 of highly prospective tenure, Westgold is the
dominant gold miner in the Murchison and Bryah regions of
Western Australia and uniquely an
owner-operator of its five underground mines.
With proven team, a history of cash flow generation, new cash
flow-based dividend policy, increasing operational delivery, no
debt, unhedged gold sales and a strong balance sheet consisting of
A$247 million in cash and bullion at
31 March
202414, Westgold is structuring for
continued profitability and shareholder returns in
FY24.
About Karora
Karora is focused on increasing gold production at its
integrated Beta Hunt Gold Mine with beneficial nickel by-product
production and Higginsville Gold Operations in Western Australia. Ore is processed at two
centralised plants: the 1.6 Mtpa Higginsville mill and the 1.2 Mtpa
Lakewood mill, both located near its mining operations. Karora is
continuing to build off its strong history of delivering consistent
gold production and cash flow with 2024 gold production guidance at
170-185koz15 and AISC cost guidance at
US$1,250–US$1,375 per ounce sold.
Beta Hunt hosts a robust gold Mineral Resource and Reserve in
multiple gold shears, with gold intersections along a 7 km strike
length remaining open in multiple directions.
Higginsville has a substantial Mineral gold Resource and Reserve
and highly prospective land package totalling approximately 1,900
square kilometres.
Karora's Shares trade on the TSX under the symbol KRR and on the
OTCQX market under the symbol KRRGF.
Qualified Person's
Statement
The scientific and technical information in this press release
has been reviewed and approved by Mr. Steve
Devlin B.Eng. MAusIMM. Mr. Devlin is a "qualified person" as
defined in National Instrument 43-101 – Standards of
Disclosure for Mineral Projects. Mr. Devlin is a full-time
senior executive of the Company.
Disclaimer
This news release contains "forward-looking information"
including without limitation (i) the expected outcomes of the
Transaction; (ii) the ability of Karora and Westgold to completed
the Transaction on the terms described herein in a timely manner,
or at all, including the receipt of required approvals and
satisfaction of other closing conditions; (iii) the impact of the
Transaction on stakeholders, including the expected benefits to
Karora shareholders; (iv) discussions of future plans, projects,
objectives and potentials synergies and potential rerating; and (v)
statements relating to production guidance and the potential of the
Beta Hunt Mine and Higginsville Gold Operation.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Karora to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Factors that could
affect the outcome include, among others: future prices and the
supply of metals; the results of drilling; inability to raise the
money necessary to incur the expenditures required to retain and
advance the properties; environmental liabilities (known and
unknown); general business, economic, competitive, political and
social uncertainties; results of exploration programs; accidents,
labour disputes and other risks of the mining industry; political
instability, terrorism, insurrection or war; or delays in obtaining
governmental approvals, projected cash operating costs, failure to
obtain regulatory or shareholder approvals. For a more detailed
discussion of such risks and other factors that could cause actual
results to differ materially from those expressed or implied by
such forward-looking statements, refer to Karora 's filings with
Canadian securities regulators, including the most recent Annual
Information Form, available on SEDAR+ at www.sedarplus.ca.
Although Karora has attempted to identify important factors that
could cause actual actions, events or results to differ materially
from those described in forward-looking statements, there may be
other factors that cause actions, events or results to differ from
those anticipated, estimated or intended. Forward-looking
statements contained herein are made as of the date of this news
release and Karora disclaims any obligation to update any
forward-looking statements, whether as a result of new information,
future events or results or otherwise, except as required by
applicable securities laws.
_______________________________________
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1 Based on AUD:CAD 0.8941 on 5
April 2024.
|
2
Based on Enlarged Westgold's pro-forma shares on issue of
approximately 945.4 million and Westgold's last closing price of
A$2.28 as at 5 April 2024.
|
3
Westgold currently has outstanding zero cost collar contracts for
contingent delivery of 2,500 oz Au per month to June 2024.
|
4
Operating synergies are based on, but not limited to, forecast
savings relating to consumables, capital cost savings through
optimisation of equipment, site administration, and staff
attraction and retention etc that the larger combined entity's
market presence is expected deliver and has been calculated as a 5%
saving of 60% of the combined operating costs over the current 10
year life of mine plan.
|
5
Corporate synergies are based on, but not limited to, closure of
multiple Karora North American offices, reduction in overhead and
removal of duplication of some administrative functions.
|
6
Based on Karora's TSX announcement "Karora Announces First Quarter
Gold Production of 36,147 ounces, Gold Sales of 40,343 Ounces and a
cash position of C$87.3 million" dated 5 April 2024 filed by Karora
on SEDAR+ (www.sedarplus.com) in accordance with NI 43-101. Refer
to Schedule 1 for further information.
|
7
Based on Karora's TSX announcement "New Fletcher Zone Gold Drilling
Results of 3.8g/t over 33.0 metres and 34.6g/t over 2.0 metres at
Beta Hunt Strong Increases in Beta Hunt Gold Mineral Resources,
Grades and Gold Mineral Reserves" dated 22 February 2024 filed by
Karora on SEDAR (www.sedar.com) in accordance with NI 43-101.
|
8
Based on Enlarged Westgold's pro-forma shares on issue of
approximately 945.4 million and Westgold's last closing price of
A$2.28 as at 5 April 2024.
|
9
Westgold currently has outstanding zero cost collar contracts for
contingent delivery of 2,500 oz Au per month to June 2024.
|
10
Refer to Westgold's ASX announcement titled "November Corporate
Update "dated on 29 November 2023.
|
11
Corporate synergies are based on, but not limited to, closure of
multiple Karora North American offices, reduction in overhead and
removal of duplication of some administrative
functions.
|
12
Operating synergies are based on, but not limited to, forecast
savings relating to consumables, capital cost savings through
optimisation of equipment, site administration, and staff
attraction and retention etc that the larger combined entity's
market presence is expected deliver and has been calculated as a 5%
saving of 60% of the combined operating costs over the current 10
year life of mine plan.
|
13
Based on Westgold's ASX announcement titled "Westgold adds $9M free
cash in Q3, FY24" dated 3 April 2024 lodged by Westgold on the ASX
Market Announcements Platform (ww.asx.com.au). All material
assumptions underpinning the Westgold production target as
announced on that date continue to apply and have not materially
changed.
|
14
Based on Westgold's ASX announcement titled "December 2023
Quarterly Report" dated 31 January 2024 lodged by Westgold on the
ASX Market Announcements Platform (ww.asx.com.au).
|
15
Based on Karora's See Karora's TSX announcement dated 5 April 2024
– Karora Announces First Quarter Gold Production of 36,147 ounces,
Gold Sales of 40,343 Ounces and a cash position of C$87.3 million
dated 5 April 2024 filed by Karora on SEDAR+ (www.sedarplus.com) in
accordance with NI 43-101.
|
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SOURCE Karora Resources Inc.