Delta Gold, Goldfields to merge

Delta Gold, Goldfields to merge Gold miners Delta Gold and Goldfields are poised to become the latest participants in the consolidation wave that is sweeping across the gold sector. The companies have agreed to an all-stock merger deal to create one of Australia’s largest gold companies, with a market capitalization of about A$825 million.

Under the proposed deal, Delta shareholders would receive 187 Goldfields ordinary shares for every 200 Delta ordinary shares held, resulting in Delta shareholders holding a 57% interest in the merged company.

The deal is subject to:

• Delta shareholder approval and subsequent court approval;
• all relevant regulatory approvals, including Foreign Investment Review Board approval;
• no material adverse change affecting the assets of either party; and
• no prescribed occurrences occurring, as agreed by the parties.

The proposed deal is subject to a A$5-million breakup fee in case:

• either company’s board should fail to recommend the merger proposal;
• either board should recommend a competing merger or asset acquisition proposal;

or

• a third party acquires 30% or more of the voting power of that party.

Both companies have agreed not to solicit competing proposals unless a takeover bid or merger proposal is announced or its directors consider their fiduciary duties otherwise require.

Delta options that were converted into Delta shares prior to the merger record date (if approved) will be entitled to participate. Options outstanding at the record date will be cancelled.

“Both companies have considered this combination for some time,” says Peter Cassidy, Goldfield’s CEO. “We are convinced that, given developments within the industry, capital markets and our respective portfolios of assets, this merger will unlock the full potential of both companies to the benefit of all shareholders.”

Using financial results for the year ending June 30, the merged entity would have pro forma revenue of A$773.5 million, aftertax operating profit of A$68 million and operating cash flow of A$234.2 million. Pro forma attributed net assets total A$361 million and net debt is A$97.8 million.

Savings arising from the transaction are pegged at A$15 million per year (pretax). They would include:

• rationalization of administration and corporate overheads and optimization of operating activities in the Kalgoorlie region;
• enhanced liquidity and market presence;
• increased opportunities for growth;
• consolidation of exploration activities and land holdings;
• improved balance sheet strength and capacity;
• diversification of risk; and
• the ability to transfer people and expertise across a range of operations.

Delta Gold holds varying interests in four gold operations — Kanowna Belle (100%) and Granny Smith(40%), Australia’s largest and lowest-cost gold mines, and Golden Feather (100%) and Wirralie (100%).

Goldfield brings to the table interests in the Henty (100%), Kundana (100%), Paddington (100%) and Porgera (25%) gold projects in Tasmania, Western Australia and Papua New Guinea.

The post-merger company’s eight-member board of directors would be headed by Dick Warburton (currently Goldfields’ chairman) as chairman. Terry Burgess, Delta’s managing director, would become CEO and managing director. Peter Cassidy would remain as a non-executive director.

Bernard Fisk, Delta’s chairman, and Delta directors Robert Reynolds and David Gellatly have announced their intention to retire if the deal goes through. John Studdy, a Goldfields director, also plans to retire at the company’s next annual general meeting.

Upon approval of the merger, shareholder approval would be sought for a new name for the merged entity.

Documentation for the deal, including an independent expert’s report, will be sent to Delta shareholders in early November and a shareholders’ meeting is planned for December.

Delta finished up A4 at A$1.81 and Goldfields was steady at A$1.86 at Monday’s close on the Australian Stock Exchange (ASX).

The proposed deal values Delta shares at A$1.74 each at current share prices.

The deal wasn’t enough to counter investor jitters on the ASX. Australia’s benchmark S&P 200 index fell 145.5 points, or 4.7%, to 2,955.3 points, its lowest close in 17 months.