Silver Lake, Red 5 make $2.2bn move

Mid-tier gold producers Silver Lake Resources and Red 5 have announced their intention to merge, with a combined entity to have a market cap of about $2.2 billion.

As part of the transaction, Red 5 will secure 100 per cent of Silver Lake's shares, while Silver Lake shareholders will receive 3.434 Red 5 shares for every held Silver Lake share. 

Once the deal has been finalised, Red 5 will have a 51.7 per cent stake in the new company, with the remaining 48.3 per cent controlled by Silver Lake.

Both Red 5 and Silver Lake boards unanimously backed the deal and expect the merger to be implemented by June, subject to approval from Silver Lake's shareholders in May.

Monday's announcement follows Silver Lake signalling its intent to purchase (and subsequently purchasing) an 11 per cent slice of Red 5 in September last year. 

The new entity's executive management team is also set, with Luke Tonkin appointed managing director and chief executive officer. Russell Clark, Richard Hay and Struan Richards will assume the roles of chairman, chief operating officer and chief financial officer, respectively. 

Mr Tonkin said the merger provided an opportunity for a new entity to capitalise on a combined 445,000 ounces of gold per annum portfolio, coupled with solid reserves and promising balance sheet.

"This transaction represents a highly complementary combination of assets and balance sheets for the mutual benefit of both Silver Lake and Red 5 shareholders," he said.

"Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here. The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth.”

Red 5 managing director Mark Williams, who will cease his employment with Red 5 on the implementation date, said the agreement was a positive one for shareholders.

"This transaction represents a logical merger of two leading mid-tier gold companies and represents an exciting inflection point for Red 5 shareholders following the successful development, ramp-up and achieving steady state production at King of the Hills," he said.

The new company will have a combined net cash and investment kitty of $378 million, with additional funds likely to be added following the elimination of duplicated resources and costs. 

Monday's announcement comes on the back of a busy few months for both Silver Lake and Red 5.

During recent quarterly updates, Silver Lake said it would likely maintain its 210,000 to 230,000oz annual production guidance, while Red 5 said it was on track to meet the upper tier of its 195,000-215,000oz guidance target for 2024 financial year, having already produced 108,026oz. 

Silver Lake closed trade down 11 per cent on Monday at $1.12 per share, while Red 5 shares finished slightly up at 34 cents per share.