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Karora Resources shareholders urged to stamp Westgold Resources merger

Westgold Resources’ plans to merge with Karora Resources have been boosted by a new proxy advisory group report. Credit: File

Westgold Resources’ (ASX: WGX) plans to merge with TSX-listed Karora Resources (TSX: KRR) have received a major boost with United States-owned proxy advisor group Institutional Shareholder Services (ISS) recommending the latter’s shareholders vote in favour of the proposal.

With a special Karora shareholder meeting scheduled for next week, the ISS highlighted cost savings, diversification and scale as reasons why its institutional clients should get behind the high-profile $2.2 billion merger.

The recommendation comes just a day after Australia’s Takeovers Panel said it had found no grounds for a declaration of “unacceptable circumstances” following protests from Ramelius Resources.

Ramelius had previously courted both Karora and Westgold, but after what has been described as a “messy web of interest” involving the gold-hunting trio, the $2.21 billion market-capped company today confirmed it had now stepped back from any involvement with either firm. It said in a statement that it was no longer in any corporate transaction negotiations with Westgold and had ceased all discussions with Karora regarding a potential control transaction.

Now, the recommendation to support the merger by ISS – a leading proxy advisory firm known for its independent voting recommendations to hedge and mutual funds –has emerged following its thorough review of the proposal. According to the group, the merger promises strategic advantages, including significant cost synergies, enhanced financial stability and diversification.

It says Karora shareholders stand to benefit from both immediate cash value and long-term growth potential through shares in “Westgold 3.0” and ownership in a new company dubbed “SpinCo.”

The ISS report independently validates the fairness of the transaction between Westgold and Karora. We are pleased that ISS recognizes the value and strategic fit of this merger. Once complete, the Transaction brings complementary teams and assets together to establish Westgold 3.0, a compelling investment proposition in the Australian gold sector.
Westgold Resources Managing Director and CEO Wayne Bramwell

The merger, structured as a court-approved plan under the Canada Business Corporation Act, requires a two-thirds majority vote from Karora shareholders. The boards from both companies have deemed it in the best interests of their shareholders, with all Karora directors and senior officers confirming their intention to vote in favour of the deal.

Under the proposed terms, Karora shareholders are set to receive an attractive and multi-faceted offer. Each Karora share will be exchanged for 2.524 Westgold shares, equating to $5.755. Additionally, shareholders will receive 68c in cash for each Karora share and 0.3 of a share in SpinCo.

As a newly-formed entity, SpinCo will hold Karora’s existing 22.1per cent interest in Kali Metals, a 1 per cent lithium royalty on specified Kali mining interests, deferred consideration payments related to the sale of Karora’s Dumont nickel asset and $6 million in cash.

Upon completion, Westgold is projecting an annual production of 400,000 ounces of gold, with no hedging, allowing full exposure to gold price fluctuations. As one of Australia’s top five gold producers, it is well-funded with $263 million in cash and bullion reserves – a strong financial position that supports significant opportunities for organic growth and exploration.

The next 12 months promises to be a busy period for the newly-combined company, apart from managing its enlarged production profile, as it looks to push out the rigs to target high-quality exploration targets and to extract substantial costs savings. The savings are expected to come from trimming its corporate overheads to the tune of $281 million and $209 million in operating costs in the next decade.

Westgold 3.0 will have a market capitalisation of $2.2 billion and will seek a dual listing on the Toronto Stock Exchange (TSX).

With a buoyant gold price sitting at more than $3510 an ounce, Westgold seems to be making all the right moves as it looks to push for a significant improvement in brand recognition and become a more attractive proposition to overseas investors as a globally-investable, mid-tier gold producer.

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