St Barbara and Genesis Minerals ditch merger, shift to sale of Gwalia and Leonora gold projects
Genesis Minerals will pay $600m to buy St Barbara’s Leonora district assets in WA in a cash and scrip deal.
Genesis Minerals will pay $600m to buy St Barbara’s Leonora district assets in WA in a cash and scrip deal, as part of a recut agreement to consolidate the rich WA gold district.
Genesis hit the market with a $450m raising on Friday, looking for a cash injection at $1.15 – a premium to its $1.10 last trading price, after a week of negotiations to restructure its agreement with struggling St Barbara over a way to make the consolidation of the Leonora district work.
As flagged by The Australian on Thursday, rather than a reverse takeover of Genesis and a spin out of St Barbara’s Papua New Guinea and Canadian assets, the new deal will see Genesis offer cash and shares to St Barbara to buy the company’s Gwalia mine and other nearby gold deposits.
The Australian understands St Barbara has agreed to accept upfront cash of $370m, Genesis scrip worth $170m at $1.15 a share, with an additional $60m worth Genesis shares due when satellite deposit Tower Hill first produces ore.
In total, that would give St Barbara about 20 per cent of Genesis shares, well down from the 38 per cent of the merged company envisaged in the first version of the agreement. But the cash component would be enough to rid St Barbara of its debt problems, and cash to pursue the further development of its PNG and Canadian assets.
Genesis will raise the cash in two parts, through an accelerated $50m placement, and then a second tranche of $400m if shareholders of both companies approve the deal.
With bids due into the raising on Friday, both companies are expected to return from a trading suspension on Monday.
Renegotiation of the original merger plan was forced by revelations of fresh troubles at St Barbara’s Gwalia mine, revealed in early April. Problems with underground mining at Gwalia forced the company to slash its financial year output its annual guidance by as much as 30,000 ounces, and point to pressure on its balance sheet.
St Barbara finished March with only $7m in cash attributable to its Australian assets, and $60m in total, and the company pointed to the risk that it could eventually fall into a breach of the terms of its agreement with Genesis that it would have no more than $163.2m in net debt at the close of the merger deal.
St Barbara drew down $20m in debt in January, after finishing December with $149.4m in interest bearing borrowings in the company’s current liability column. The company said on April 4 it finished March with net debt of $112m.
The shift to an asset deal means both companies will need to win the support of a majority of shareholders to approve the transaction.
While St Barbara seemingly has few other options, the sale of its flagship Australian operations might be a tough sell to long-suffering retail shareholders that have seen the company’s value plummet from more than $2bn ahead of its disastrous $780m acquisition of Atlantic Gold in 2019, to about $530m this week.
In early March St Barbara flagged the likely need to mothball its Touquoy open pit mine within months after failing to win approval from provincial authorities in Canada to extend the tailings storage facility at the mine.
The company took a $420m impairment against its Canadian assets in its February half-year financial report, on top of the $223.5m impairment to the assets last financial year, and the $349.3m impairment the previous year.
The company also has significant issues with the future of its Simberi mine in PNG, with the company still spending to fix its deep sea tailings pipeline – which forced the temporary closure of the mine last year – and having still to decide what it will do to advance a stalled project to shift the mine’s production to more difficult refractory parts of the orebody.
St Barbara last traded at 64.5c, with Genesis last closing at $1.10.
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