16/06/2021 - 12:00

Gascoyne to create $160m merger with Firefly

16/06/2021 - 12:00

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Gascoyne Resources is set to extend the life of its Dalgaranga operations near Mt Magnet through an all-scrip purchase of Firefly Resources, whose assets include a nearby gold project.

Gascoyne to create $160m merger with Firefly
Gascoyne plans to integrate Firefly's Yalgoo project into the Dalgaranga production plan. Photo: Gascoyne Resources

Gascoyne Resources is set to extend the life of its Dalgaranga operations near Mt Magnet through an all-scrip purchase of Subiaco-based Firefly Resources, whose assets include a nearby gold project.

Gascoyne on Wednesday announced it had entered into a binding scheme implementation deed with ASX-listed Firefly, under which the two companies would merge to create a $159 million entity with a net cash position of $15.5 million.

The combined group will have about 372 million shares on issue and continue trading as Gascoyne Resources.

Gascoyne said the acquisition would unlock a number of synergies between the two companies and create a leading regional gold production and development business with combined mineral resources of 1.38 million ounces.

Firefly has three assets including the Yalgoo gold project, which is located 110 kilometres from Gascoyne’s Dalgaranga operations.

Gascoyne said it would integrate Yalgoo’s near-surface, higher grade deposits into the Dalgaranga production plan to substantially extend and optimise the existing mining schedule.

At present, Dalgaranga is expected to continue production until 2027.

Gascoyne recently forecast the mine would produce between 76,000 ounces and 78,000oz in the current financial year.

On Wednesday, managing director Richard Hay – who will lead the combined group – said the merger was a step forward in Gascoyne's plans to extend mine life and increase annual production at Dalgaranga.

“The integration of high-grade Yalgoo ore in our production plan moving forward has excellent potential to extend mine life, reinforcing Gascoyne’s position as a key gold producer in the Murchison region,” he said.

“Furthermore, the merger with Firefly will consolidate about 1,200 square kilometres of the Yalgoo and Dalgaranga greenstone belts under single ownership, significantly enhancing the exploration upside potential with over 100 high-quality targets.

“Any discoveries can quickly be brought into production at Gascoyne’s high-quality, low-cost Dalgaranga processing plant.”

Dalgaranga, located 65km from Mt Magnet, began production in May 2018.

Gascoyne relisted on the ASX in October last year, following a $125 million recapitalisation that helped the company repay its creditors and continue mining operations.

The business also has a number of regional exploration assets in Western Australia, including the Mt Egerton and Mumbakine Well projects.

Through the merger, Firefly shareholders will receive 0.34 Gascoyne shares for every share held in the explorer, representing an implied offer price of 14.5 cents per share based on Gascoyne’s five-day volume weighted average price.

It represents a 31.5 per cent premium to Firefly’s five-day VWAP and values the business at about $44 million.

As part of the deal, the combined group will demerge Firefly’s copper-gold and lithium exploration assets in WA into a new listed entity, to be named Firetail Resources.

Firefly’s manganese spinout, Firebird Metals, also listed on the ASX recently.

The Firetail demerger will be completed through an equal capital reduction in Firefly and an in-specie distribution of shares in Firetail to Firefly shareholders.

The new entity will have up to $1.5 million in cash upon completion.

Firefly managing director Simon Lawson said merging with Gascoyne would accelerate and de-risk the development of the Yalgoo project.

He said Firefly shareholders would have the opportunity to become part of a larger, regional gold company with strong cash flows and an enhanced market positioning.

Firefly will hold about 32 per cent of the merged group and Gascoyne 68 per cent.

“Firefly shareholders will stand to benefit from the re-rating that we would expect to flow from the creation of a larger gold company with an increased mine life and enhanced production profile,” Mr Lawson said.

“In addition, they are intended to benefit from the proposed demerger of our copper-gold and lithium exploration assets through Firetail Resources and receive an in-specie distribution in this exciting new energy metals focused company.”

Mr Lawson will join the board of Gascoyne as a non-executive director.

The Firefly board, representing about 6.9 per cent of the company’s shares on issue, have unanimously recommended shareholders vote in favour of the scheme.

They will be asked to approve the scheme and proposed demerger at separate meetings, expected to be held in September. Both deals are not inter-conditional.

Major shareholders representing a further 17 per cent of Firefly’s shares on issue have entered into binding voting deeds with Gascoyne under which they agree to vote in favour of the scheme.

Canaccord Genuity is acting as financial adviser to Gascoyne on the merger and Herbert Smith Freehills as legal adviser.

Meanwhile, Azure Capital is acting as financial adviser to Firefly and HWL Ebsworth Lawyers as legal adviser.

Firefly was trading 20 per cent on higher on the news to 12 cents per share, as at 1:29pm AEST.

Gascoyne shares were down 2.7 per cent to trade at 36 cents.

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