St Barbara and Genesis Minerals forced to recut merger deal on fresh Gwalia troubles
Fresh failures at St Barbara’s historic Gwalia gold mine have forced a rethink of its merger with Raleigh Finlayson’s Genesis Minerals.
Fresh failures at St Barbara’s historic Gwalia gold mine have forced a rethink of its merger with Raleigh Finlayson’s Genesis Minerals, as cash woes undermine St Barbara’s position ahead of the proposed deal.
St Barbara slashed its output guidance for Gwalia on Tuesday, cutting expected output by as much as 25,000 ounces of gold, blaming the decision on a blasting mistake that slowed recovery of underground ore and on lower-than-expected gold levels from the underground mine.
The troubled company cut Gwalia guidance from 145,000 to 160,000 ounces to new levels between 130,000 to 135,000 ounces.
With St Barbara forced to draw down another $20m in debt in January, the company’s Australian operations finished March with only $7m of available cash – albeit with a marginally improved net debt position of $112m, down from $117m at the end of December.
St Barbara also withdrew its cost guidance at Gwalia, and hinted in a release to shareholders it was likely to keep bleeding cash in the current quarter, noting that one of the conditions of its deal with Genesis was that the company have a net debt of no more than $163.2m when the deal closes.
The fresh blow to Gwalia, once St Barbara’s flagship mine, comes after a March decision it would next year need to mothball its Canadian operations – bought for $780m in 2019 – after concluding it would reach the limits of its tailings storage capacity in early 2024, ahead of the likely approval of an expansion of the facility.
Under the no-premium merger proposal reached between the two companies in December, St Barbara’s Simberi mine in Papua New Guinea and Atlantic would be spun out into a new ASX-listed entity known as Phoenician Metals, with 80 per cent of the stock sitting with St Barbara shareholders and the remainder owned by Genesis, to be renamed Hoover House after the merger.
Genesis had proposed a $275m raising to back the deal, with some of the cash destined to back the Phoenician Metals spin-out and the rest used to consolidate the joint company’s position in the rich Leonora gold district.
Both companies said on Tuesday they were committed to making the deal work.
But with St Barbara’s balance sheet under fresh pressure – and Genesis now trading 10c below the $1.20 raising price proposed in December – both Genesis and St Barbara said they were “in discussions regarding potential alternative transaction structures and capital requirements”.
Market sources suggested on Tuesday the relative share proportions in the merger could need to blow out as far as 2.5 St Barbara shares for each Genesis share on offer to make the deal work, depending on whether additional capital is needed to pad out the merged entity’s position if the deal goes ahead.
Both entered a trading halt on Tuesday, with St Barbara stock worth 64.5c and Genesis valued at $1.10.