Gold’s lustre and its buoyant price have helped catapult miner Northern Star as the country’s biggest ASX-listed gold producer after it secured a $5 billion deal to acquire rival De Grey Mining.
Northern Star said on Monday it will acquire De Grey for $5 billion, beefing up its gold output. The acquisition means Northern Star will take over De Grey’s flagship project, Hemi: a low-cost, long-life, large-scale gold development in Western Australia’s Pilbara region.
Hemi is one of the largest untapped gold prospects in the world. When up and running, it will add 530,000 ounces to the combined group’s annual output, putting it at about 2.5 million ounces.
Haul trucks transport ore at the “super pit” near Kalgoorlie which is a large open-cut mine owned by Northern Star.Credit: Bloomberg
The price of gold has been on a tear since October last year, peaking above $US2740 ($4210) per ounce just before Donald Trump’s election in November, underpinned by the strong US dollar, elevated interest rates, and demand for the precious metal from world’s central banks, particularly China’s.
However, Trump’s subsequent election and his championing of bitcoin – has taken the shine off the metal, with prices dropping to around $US2650 on Monday.
Northern Star managing director and chief executive Stuart Tonkin said the Hemi project would enhance the quality of Northern Star’s assets and generate cash earnings.
De Grey’s board of directors has unanimously supported the deal and says it will recommend it to shareholders. If accepted, it will be finalised in April.
Northern Star owns and operates the “super pit”, a huge open-cut mine on the edge of the Kalgoorlie township in WA’s Goldfields-Esperance region, which produces about 437,000 ounces of gold annually. It also operates the Thunderbox, Orelia, Carosue Dam, Jundee and Porphyry mines in Australia and the Pogo mine in Alaska’s Yukon.
Shares in Northern Star traded lower on Monday, down 5.3 per cent to $16.59. De Grey’s stock jumped almost 30 per cent to $1.97.
De Grey managing director Glenn Jardine said the company was in the fortunate position of either developing the mine or choosing a merger or acquisition. He added the miner hadn’t run a sale process to see if there were other interested buyers, although it had spoken with a range of parties over a long period of time.
“We were approached by Northern Star. We engaged with Northern Star. Following the approach, we determined that if they were able to make a compelling offer, which we believe it is, and it was attractive for both groups of shareholders, we would seriously consider it,” Jardine said.
“The transaction that we have entered with Northern Star today is a highly attractive opportunity for De Grey shareholders in terms of the upfront premium, as well as retaining ongoing exposure to Hemi and gaining exposure to the broader Northern Star portfolio,” he said.
De Grey’s shareholders will be paid in Northern Star shares under a scheme of arrangement, in an all-scrip transaction. They will receive 0.119 of a Northern Star share for each De Grey share, implying a value of $2.08 per share for De Grey’s scrip, and nearly $5 billion for the entire company. When completed, the deal will leave Northern Star shareholders with 80 per cent of the combined entity and De Grey shareholders the remaining 20 per cent.
Gold prices have retreated since Donald Trump’s election win.Credit: AP
In a recent commentary, the World Gold Council said gold’s negative reaction to the US election was the result of higher bonds yields, lower sanctions risks, and a renewed bullishness in equity markets and cryptocurrencies.
But the Gold Council said there were still fundamental global uncertainties that were likely to support future prices, including a shift towards protectionism and overvalued equity markets.
Analysts at merchant bank RBC Capital Markets said the deal provides De Grey shareholders with a 37 per cent premium, an “adequate” uplift given the risks that Northern Star is taking on from the as-yet undeveloped Hemi project.
”Hemi has project development risk, permitting risk, higher capital costs, the potential of De Grey requiring additional capital, and operating risk, notably for processing semi-refractory ore,” RBC said.
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