De Grey shares soar on Northern Star $5b buyout
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More news: Shares in De Grey Mining rocketed at market open after the gold miner's board unanimously backed a $5 billion takeover by ASX rival Northern Star Resources.
De Grey shares were up 28% to $1.95 by 10:25am AEDT while Northern Star shares dropped 4.83% to $16.67.
Citi analysts believe the deal is "likely to complete" given De Grey shareholders get a sizeable premium and can also 'sit out' the development phase of the Lassonde Curve in Northern Star's multi-asset portfolio. The curve represents a mining company's life stages.
However, the analysts noted that the timing comes as a surprise after comments by Northern Star in late October that "greatest returns right now are in organic delivery".
De Grey's greenfield Hemi project is a deviation from Northern Star's typical "old asset turnaround" playbook, they said, but the development addresses the miner's "ageing and increasingly capex intensive portfolio".
Citi noted that Northern Star expects Hemi to add around 530,000 ounces per year to group production, though De Grey's scoping study for the project is higher at around 700,000 ounces per year, including regional deposits.
Northern Star agrees to acquire De Grey for $5 billion
The news: Northern Star Resources has agreed to buy 100% of the shares in rival ASX gold miner De Grey Mining for an equity value of $5 billion.
The numbers: Under the scheme of arrangement, De Grey shareholders will receive 0.119 new Northern Star shares for each De Grey share held.
The deal represents an implied offer price of $2.08 per De Grey share and a total equity value for De Grey of approximately $5 billion. The offer marks a 37.1% premium to De Grey's last closing share price of $1.52.
Northern Star shareholders will own around 80.1% of the combined group, with De Grey shareholders holding the remaining 19.9%.
The combined Northern Star Group will operate across two Tier-1 jurisdictions and four production centres, with pro forma mineral resources of 74.9 million ounces and ore reserves of 26.9 million ounces.
The context: The deal will see Northern Star acquire De Grey's flagship Hemi project in Western Australia, one of the world's largest undeveloped gold projects in a Tier-1 mining jurisdiction.
The companies said that Northern Star's exploration, mine development and operating expertise is expected to unlock the long-term value potential of the Hemi project, and "generate superior returns to all shareholders".
The scheme has been unanimously recommended by De Grey's board of directors, subject to no superior proposal emerging.
What they said: "De Grey's Hemi development project will deliver a low-cost, long-life and large-scale gold mine in the Tier-1 jurisdiction of Western Australia, enhancing the quality of Northern Star's asset portfolio to generate cash earnings," Northern Star managing director and chief executive Stuart Tonkin said.
De Grey's managing director Glenn Jardine said: "Given the high-quality nature of Hemi, De Grey is in the fortunate position to have had many avenues to progress the asset, including M&A".
"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."
The sources: ASX announcement, Citi research
