Silver Lake throws another $44m into bid for St Barbara Gwalia mine

Silver Lake Resources has thrown another $44m on the table to try to force St Barbara’s directors to the negotiating table.

Silver Lake Resources has thrown another $44m on the table to try to force St Barbara’s directors to the negotiating table over the sale of the company’s Gwalia gold mine near Leonora.

The latest bid ramps up the pressure on St Barbara’s board, which has so far resisted offering Silver Lake access to its books as it closes on a June 20 shareholder vote on a previously agreed sale of the historic gold mine to Genesis Minerals. Silver Lake is now offering $370m cash and 327.1 million of its own shares – valued at $352m at Friday’s closing price of $1.075, for a total price of $722m.

That is an almost 16 per cent premium to the current value of Genesis’s bid for the Leonora assets, based on Genesis’s $1.235 closing price on Friday. It is also about a 10 per cent premium on the Genesis bid when including discounts for tax, transaction fees and other costs of breaking the previous deal.

The key issue for all three companies is whether that is enough of a premium to trigger the co-called “fiduciary out” clause in St Barbara’s agreement with Genesis, which allows the company to disregard the “no-talk” provisions of the deal and allow a superior bidder to peek inside the company’s books.

Previous offers from Silver Lake have been rebuffed by St Barbara as too small a premium to avoid the risk of Genesis walking away from the deal – putting the company at a significant risk of insolvency if Silver Lake then fails to submit a firm offer, and for putting the timetable of its deal with Genesis under threat, given the requirement for a two-week due diligence process.

In its meeting notice to shareholders, St Barbara warned that without a deal the company was likely to breach its banking covenants when they are tested on June 30. This will put the company at risk that its bankers may call in the bulk of its debts and send the company under, which would effectively wipe out its equity holders.

Consideration of whether Silver Lake’s latest offer merits due diligence will likely centre around whether it remains superior to both its initial approach – while lower in cash, Silver Lake’s first bid triggered a selldown in its stock, and the scrip component made the total valuation worth $732m – and that of the early valuation of Genesis’s bid, which also suffered a selldown when Silver Lake ambushed the sale process.

Silver Lake’s latest bid is now being vocally backed by substantial St Barbara shareholder L1 Capital, which said on Friday it plans to vote against the Genesis deal on June 20.

While L1 holds about 9.4 per cent of St Barbara stock, Silver Lake appears to have lost the support of St Barbara’s other major shareholder, Baker Street, which has a similar holding to L1 and now appears to be backing the Genesis deal.

Both St Barbara and Genesis need half of the votes cast at their respective shareholder meetings to approve the deal. Genesis holders meet on June 18, and the company said last week it already has expressions of support from 49 per cent of its register.

A key issue for Silver Lake will be whether its own share price holds up on Monday when the market returns to trading, given its previous offers triggered a selldown of its stock.

Silver Lake was trading at more than $1.20 before it went public with its bid for St Barbara on May 4, but its shares fell to close to the $1 mark until Genesis improved its own offer, which triggered a quick uptick in Silver Lake shares.

And a decision by the St Barbara board to engage with Silver Lake would also trigger considerable angst at Genesis, however, which has only limited room to move on its improved bid.

Genesis has already locked away the cash needed to close its end of the deal through a conditional capital raising, and is believed to view its most recent bid as offering close to full value for the ageing and troubled Gwalia mine.

Originally published as Silver Lake throws another $44m into bid for St Barbara Gwalia mine