Proxy firms back Genesis Minerals offer for St Barbara

St Barbara shareholders will soon vote on whether to accept a buyout proposal from Genesis Minerals. Picture: AFP

Three proxy firms, including ISS, Ownership Matters and Glass Lewis have all recommended shareholders from gold miner St Barbara vote in favour of the buyout offer on the table from Genesis Minerals.

It comes ahead of a shareholder vote on the deal, due to be held on June 20.

Glass Lewis and Ownership Matters say that it is in agreement with St Barbara that the premium being offered by Silver Lake Resources is not, by itself, sufficient to justify the risk of losing the Genesis Proposal.

“St Barbara points to the risk that any further delays to a deal would likely mean that St Barbara will be in breach of its banking covenants when tested at June 30,” Glass Lewis said.

The Glass Lewis report adds that despite previous success by St Barbara in obtaining a debt covenant waiver, there was no guarantee that St Barbara’s lenders would be willing to extend yet another waiver, noting that at December 31, the company had only about $37.5m of cash on hand.

Without the Genesis proposal or another debt covenant waiver, the report said that St Barbara would “almost certainly need to swiftly raise a significant amount of additional capital to meet a material increase in funding requirements and pay down a significant portion of its senior debt facilities.”

It could mean that St Barbara could be rendered technically insolvent prior to any potential deal with Silver Lake closing.

It added that it did not find any material conflicts of interest among St Barbara’s directors, nor any indication that St Barbara’s directors had not earnestly considered Silver Lake’s approach. “Based on these factors, we are inclined to concur with the findings and conclusions of the St Barbara board, and thus believe that the Sale Agreement warrants shareholder support at this time,” Glass Lewis said.

Silver Lake Resources staged an upset last month when it presented a rival buyout proposal to that on the table from Raleigh Finlayson’s Genesis Minerals for St Barbara’s gold mining assets in the Western Australia Leonora district.

After its offer was rejected, it sweetened the terms.

But the last correspondence from St Barbara said it continued to recommend the Genesis Minerals offer.

Among the reasons was that the Silver Lake proposal was highly conditional, and should St Barbara offer the company due diligence, it may put the Genesis Minerals proposal on the table at risk.

The latest offer from Silver Lake lifted its cash component to $370m from $326m, while offering 327.1 million Silver Lake shares, valuing the target at $720m.

Genesis Minerals is offering $370m cash plus 205m shares, taking the value to about $636.5m.

Some shareholders have placed pressure on St Barbara to engage with Silver Lake, including L1 Capital and Baker Steel Capital Managers, which hold 9.3 per cent and 8.6 per cent respectively.

Those backing the Genesis Minerals deal believe Mr Finlayson has the best operational skills to run St Barbara, but Genesis does not bring the same assets to the table in its merger transaction.

Both St Barbara and Genesis need half of the votes cast at their respective shareholder meetings to approve the deal.

Ownership Matters agreed that the proposed sale to Genesis Minerals provided a level of certainty for St Barbara as it remains in need of $160m to repay senior debt and its Atlantic operations environmental bond.

“Some shareholders may determine that the premium under the Silver Lake proposal is sufficient having regard to the risk of completion.

“Ownership Matters notes, however, that currently, the Silver Lake proposal lacks the level of certainty provided under the proposed sale to Genesis Minerals in that the Silver Lake proposal is indicative, non-binding and conditional on due diligence as well as Silver Lake shareholder approval,” the proxy advisor said.

“The Silver Lake proposal is also contingent on the Genesis Minerals proposal being terminated and in this circumstance, there is no certainty that a Silver Lake proposal equivalent to the existing Genesis Minerals proposal will be made.”