Westgold takes ‘prize’ Beta Hunt mine in $1B Karora takeover in Australia

Australia’s Westgold Resources (ASX: WGX; US-OTC: WTGRF) is buying Karora Resources (TSX: KRR; US-OTC: KRRGF) in a $1 billion (A$1.23 billion) cash-and-shares deal to control the jewel in the country’s gold sector.

The merger brings Karora’s Beta Hunt mine together with Big Bell, the emerging Bluebird and the historical Great Fingall mine under one Australian management team. Beta Hunt garnered global attention in 2018 when teams discovered two of the largest gold specimens ever found, weighing about 95 kg and 63 kg, with an estimated gold content of 2,440 oz. and 1,620 oz., respectively.

“The prize here is Beta Hunt’s gold potential,” Westgold managing director and CEO Wayne Bramwell said on April 8. “Rarely do you find a gold asset of the quality and potential of Beta Hunt hiding in a nickel belt and drilling is expected to further unlock value at this mine.”

The deal will save $438 million in operating costs and position the new company as a mid-tier gold producer globally and top-five Australian with 400,000 oz. in annual output. It will have combined ore reserves of 3.2 million oz. gold and resources of 13 million oz. metal and a market capitalization of about A$2.2 billion.

Karora shareholders are set to receive a blend of 2.524 shares of Westgold, A$0.68 in cash, and 0.3 share of a new entity to be created from Karora. This new company will include Karora’s investments in the lithium exploration company Kali Metals and a 1% lithium royalty on specific mining properties.

The transaction values each Karora share at A$6.60 ($5.90), considering Westgold’s last closing price. The valuation is a 10.1% increase over Karora’s previous closing price.

Mid-July close

Karora walked away from merger negotiations with Ramelius Resources (ASX: RMS) last month. The new deal is expected to close in mid-July and create cash on hand of about $143 million for Westgold.

Amid record gold prices, Western Australian producers have focused the past year on operational efficiencies to capture higher margins. Key Australian players like Northern Star Resources (ASX: NST) and Evolution Mining (ASX: EVN) have demonstrated the critical importance of managing all-in costs to safeguard profitability. Theyaced slim margins partly due to upfront capital and exploration spending incurred early in the fiscal year.

Karora CEO Paul Huet suggests the deal opens significant potential for an eventual share price re-rate as the combined portfolio’s synergies and enhanced scale are realized.

“With the combination of Westgold and Karora, we are taking the next step by combining two highly complementary, free cash flow generating asset bases in one of the world’s finest mining jurisdictions to create a premier Western Australian mid-tier gold producer,” he said.

Last year, Karora produced a record 160,492 oz. gold, exceeding 2022 output by over 26,000 oz. and beating the high end of its full-year guidance range of 145,000 – 160,000 ounces.

Paying off Karora’s A$44 million ($39 million) revolving debt will further support an accelerated resource development program at the Beta Hunt Fletcher zone and Bluebird-South Junction, the companies said.

The new miner will also have a combined pipeline of advanced growth options and exploration targets across Karora’s Beta Hunt and Higginsville properties and Westgold’s Murchison and Bryah properties.