Investors have reacted well to news that gold-focused companies Echo Resources and Metaliko Resources will merge in a deal worth $38.9 million.
In a statement today, Echo announced it would acquire all of the issued shares in Metaliko by offering one of its shares for every 2.5 Metaliko shares.
The deal, based on Echo’s last closing price of 22 cents, values Metaliko at 8.8 cents per share, equal to $38.9 million.
The offer price represents a 38 per cent premium to Metaliko’s 20-day volume-weighted average price.
Investors welcomed the news, with Metaliko shares surging 30.9 per cent to 9.3 cents each, while Echo shares gained 20.4 per cent to 26.5 cents each, at 11:30am.
If the deal is successful, Metaliko will become a wholly-owned subsidiary of Echo, while Echo’s board will be expanded to five members.
It will retain Barry Bolitho as chairman, Simon Coxhell as chief executive and a director and Anthony McIntosh as non-executive director, while Robin Dean and Mark Hanlon will represent Metaliko on the Echo board as non-executive directors.
Echo shareholders are expected to own a 49.6 per cent stake in Metaliko, while Metaliko shareholders will hold on to the majority 50.4 per cent interest.
Echo’s board members have signalled their intention to recommend the company’s shareholders vote in favour of the offer, while Metaliko’s board has unanimously recommended the merger and has received statements of intention to accept the offer from shareholders holding 60.3 per cent of the company’s issued capital.
“We are firm believers in the future of the Yandal greenstone belt and Echo has built a dominant land position with a significant resource base,” Mr Coxhell said.
“This merger provides access to the Bronzewing plant plus a large prospective tenement package with enormous potential and considerable existing gold resources.
“Our aim is to bring Julius into production by mid next year and our scoping study demonstrates the deposit has potential to generate considerable cash flow.
This cash flow, if realised, will enable us to invest in a targeted, modern exploration program to uncover the significant upside we believe exists within the combined landholding.”
Metaliko executive director Michael Ruane, a former director and substantial shareholder of Echo, said the merger would create a company of considerable scale.
“Metaliko has a gold resource base of approximately 500,000 ounces within tenements adjoining those held by Echo,” he said.
“I am confident that a robust exploration program on the combined tenements will enhance this considerably.
“We have already seen other companies generate significant shareholder wealth through reinvigorating existing assets in the Yandal belt and elsewhere in WA and we see a similar opportunity for Echo and Metaliko.”
The merger follows news in January that Mr Ruane had sought a board spill at Echo, including the removal of all of its directors and have them replaced with Metaliko directors Peter Hunt, Mr Dean and himself.